The late-2018 hiccup in oil prices and concerns over takeaway bottlenecks have done little to slow down production in the prolific Permian Basin, which achieves record highs in production every month. According to the U.S. Energy Information Administration’s (EIA) monthly Drilling Activity Report, oil production in the Permian reached nearly 4 MMbbl/d in March, an increase of 43,000 bbl/d over February production and a 33% jump since the same period in 2018.
Noted for its record-setting oil plays, the Permian still produces enough natural gas to rank second in the U.S. for gas production, behind the Marcellus-Utica. According to the EIA, natural gas production in March for the Permian reached 376.6 MMcm/d (13.3 Bcf/d), an increase of 6,201 cu. m/d (219,000 cf/d) over February.
The only indication that the drop in oil prices, down to less than $43/bbl in late December, affected development in the Permian is seen in the number of active rigs. According to the Baker Hughes, a GE company, monthly rig count, the number of operating rigs on March 1 was 466, seven less than the previous week, but still 32 more than the same time period last year. In fact, the first week of March was the sixth consecutive week to start the year with slightly declining rig counts week to week.
The key driver behind the Permian’s remarkable production growth has been the Wolfcamp play. According to the EIA, as of September 2018, the Wolfcamp play accounted for about 1 MMbbl/d of crude oil—nearly one-third of the Permian’s total crude output—and 113.2 MMcm/d (4 Bcf/d) of natural gas.
The EIA attributes rising productivity in the Wolfcamp to increasingly longer horizontals and optimized completions. According to the administration, lateral lengths in the Wolfcamp increased from an average of 762 m (2,500 ft) in 2005 to more than 2,590 m (8,500 ft) in 2018.
“Well completion efficiency has also improved, primarily by more effectively using sand or proppant during the hydraulic fracturing process as well as using zipper fracturing,” the EIA stated in a November 2018 report on the Wolfcamp.
Meanwhile, once late to the Permian party, two supermajors recently announced significant ramp-ups in production. In early March, Chevron announced it would increase production from 377,000 boe/d in 2018 to 900,000 boe/d by the end of 2023, a near 140% increase in production. Over the past two years, Chevron has added almost 7 Bbbl of resource and increased production by 71%, according to the company.
Later that same day, Exxon Mobil announced its own plans to accelerate its Permian production. According to a press release, the Irving, Texas-based oil company said it aims to produce more than 1 MMboe/d as early as 2024, an increase in production of nearly 80%.
“We’re increasingly confident about our Permian growth strategy due to our unique development plans,” said Neil Chapman, Exxon Mobil’s senior vice president. “We will leverage our large, contiguous acreage position, our improved understanding of the resource and the full range of Exxon Mobil’s capabilities in executing major projects.”
Exxon Mobil’s Permian production plans are insulated against low oil prices, featuring an average return of more than 10% at $35/bbl oil.
The company also will avoid any takeaway capacity problems in the region by developing infrastructure to support the increases in production. According to the release, Exxon Mobil plans construction at 30 sites to improve processing and water handling and ensure takeaway capacity.
“Construction activities include central delivery facilities designed to handle up to 600,000 barrels of oil and 1 billion cubic feet [28.3 MMcm] of gas per day and enhanced water-handling capacity through 350 miles [563 km] of already-construction pipeline,” the company stated in the release.
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