Even though drilling has been taking place there for more than 90 years, the Permian Basin is just getting started. The first commercial well was drilled in 1921, and the basin has been producing ever since. But many in the industry started writing off the Permian as a mature basin by the 1980s, and operators started leaving the area or employing secondary and tertiary recovery methods to squeeze more oil out of the land, according to an AAPG Explorer article.
With the growth of horizontal drilling and hydraulic fracturing, tight oil production in the basin has exploded, truly changing the U.S. energy game—so much so that production in the basin has played a part in the downturn in oil prices the industry is experiencing. And though activity is slowing while operators wait for prices to recover, the potential of the Permian is just too big to ignore.
The Permian Basin covers more than 222,700 sq km (86,000 sq miles) and includes parts of Texas and New Mexico. According to the Texas Railroad Commission, just the Texas portion of the basin has produced more than 29 Bbbl of oil and 2.1 Tcm (75 Tcf) of gas in its lifetime. Industry experts estimate that it contains recoverable oil and natural gas resources that will exceed the amount already produced in the past 90 years.
The first commercial well in the Permian Basin was the Santa Rita No. 1 in Mitchell County, completed in the early 1920s and produced for decades before being capped in 1990. This first well was followed up with many others, and the basin’s first drilling boom was underway. Prior to 1928, all discoveries were made at depths less than 1,370 m (4,500 ft), but by 1928, deep tests were economically feasible, and the Big Lake oil field was discovered in Reagan County at a depth of 2,600 m (8,525 ft). This discovery increased the basin’s potential, and the demand for oil during World War II provided the push for more and deeper drilling, according to a report from Texas Tech University, “Economic Impact: Permian Basin’s Oil & Gas Industry.” Major fields like Wasson, Slaughter and Seminole were discovered during this time; many are still producing today. Since 1960, water and CO2 injection have influenced oil production and operations. CO2 flooding began in the late 1970s.
New Life In The Basin
As wells were drilled deeper and multistage hydraulic fracturing techniques were improved, operators in the Permian were able to drill beyond the trends they’d been completing into the Wolfcamp and commingle productive zones to gain extra production.
The Permian Basin includes the Delaware and Midland basins. Activity in the Spraberry, located in the Midland Basin, is attributed to downhole reservoir commingling and fracking techniques recently being employed by operators, and the Spraberry wells are predominantly vertical. Activities of the Bone Spring in the Delaware Basin and Wolfcamp Play can be attributed to horizontal drilling and fracking technology.
Technological trends in the Permian Basin include horizontal drilling, improvements in hydraulic fracturing technology, slickwater fracking, changes in fluid type and amount, increased use of 3-D seismic surveys, downhole commingling or multizone completions, multiple-well pads, and downspacing of particular fields, the Texas Tech report said.
In the last decade, activity in the Permian has exploded. The number of drilling permits issued has more than doubled since 2005, according to the Texas Tech report. The rig count had risen to more than 500 by the fall of 2014 from just 129 rigs in 2005, more than tripling. In fact, the Permian Basin had the greatest rig count of any basin or region in the world as of August 2014. It accounted for 27% of the U.S. rig count and 56% of Texas’ rig count.
The number of rigs drilling horizontally showcases the impact horizontal drilling and hydraulic fracturing have made on the basin’s activity. While just 12% of drilling permits issued in 2005 were for horizontal wells, 41% were for horizontal wells in 2013. The increase in horizontal, oil-directed rigs in the Permian between December 2013 and the fall of 2014 represented half of the total increase of those types of rigs in the U.S., according to the Texas Tech report.
Well productivity has improved significantly since 2011 as horizontal drilling and multistage hydraulic fracturing technology have evolved. The Permian Basin’s crude oil production has skyrocketed, from a low point of 850 Mbbl/d in 2007 to about 1.9 MMbbl/d today, according to the U.S. Energy Information Administration (EIA). It has surpassed production from the federal offshore Gulf of Mexico region since March 2013, which makes the Permian the largest crude oil-producing region in the U.S., accounting for 18% of the total U.S. crude oil production in 2013. The increase comes largely from six low-permeability formations: the Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso and Delaware formations.
Nearly three-quarters of the increase in crude oil production in the basin is thanks to the Spraberry, Wolfcamp and Bone Spring formations. Production from these three formations collectively increased from about 140 Mbbl/d in 2007 to an estimated 600 Mbbl/d in 2013—their share of total Permian oil production increased from 16% to 44%, the EIA said.
The stacked pay potential of the Permian Basin has piqued the interest of many shale players in recent years and encouraged a large amount of acquisition and divestiture activity, particularly in the Wolfcamp, according to “North American Shale Quarterly.”
Though overall rig count has been slashed as oil prices fall, the Permian rig count was at 355 by the end of February, with 251 horizontal rigs and seven directional rigs, according to Baker Hughes data. The Eagle Ford, by comparison, had 152 horizontal rigs out of 157 rigs total.
Spending across the industry is being scaled back in light of the low oil prices, and the Permian is being affected. In October, Shell and ConocoPhillips indicated they’d be slowing development in the Permian. Concho Resources, the largest Permian-dedicated oil company, announced in January that it would cut its 2015 spending in the Permian Basin by about $1 billion, slicing forecast spending by about a third. Rosetta Resources slashed its 2015 budget by about 25% but has plans to refocus more of its budget on the Permian Basin. Apache Corp., one of the largest players in the region, cut its rig count in the Permian by 70% in February.
But this basin has weathered many downturns in its 90-year industry history, and the vast estimated recoverable resources still in the ground mean it’s not likely to be abandoned any time soon.
Once late to the Permian party, two supermajors are poised for significant ramp-ups in production from the Permian Basin.
George Solich’s FourPoint will join forces with Double Eagle to form DoublePoint with more than 70,000 acres in the core of the Midland Basin.
Perceptions have changed for the better for the emerging oil and gas play as activity increases and others move into the neighborhood.