Reaching New Heights

The Permian Basin was thought by many to be in its twilight years—a basin dominated by enhanced recovery, small independents and stripper wells. Permian production by all accounts was heading towards zero, after peaking in the early 1970s.

However, conventional specialists such as Occidental Petroleum Corp., Apache Corp., Pioneer Natural Resources Co., and Yates Petroleum Corp. were all committed to sustaining conventional activity in the basin through the early 2000s, though to varying degrees. Conventional volumes fell below 1 million barrels per day (MMbbl/d) in 2009, but the high oil prices of 2010 through 2013 helped conventional volumes surpass 1 MMbbl/d again in early 2014. Nonetheless, the tides of activity were changing, as unconventionals began to take the industry by storm.

The story of Henry Petroleum LP’s activity offers a snapshot of this changing tide. Henry was a key operator to rejuvenate the basin through conventional development on multiple horizons of the basin. The company drilled over 800 wells by 2009, which proved enough acreage and potential to eventually woo Concho Resources Inc. to acquire the entire company. This early risk by Concho was not the first by the company, and the operator quickly began unconventional development, helping spur the initial interest in the basin’s resurrection.

In 2010, a new source of supply gradually began to emerge—dominated by horizontal wells. But still many viewed the Permian apprehensively; operators were more focused on generating oil volumes from other “hot” shale plays, such as North Dakota’s Bakken Formation.

The Permian’s unconventional activity began in earnest in 2012, as operators who had found success in other unconventional plays looked to apply new techniques to their legacy acreage. Companies including EOG Resources Inc., Devon Energy Production Co., Pioneer, and Concho all tested the basin in search of generating new volumes and accelerating production growth. This enthusiasm was felt throughout the industry, as over 100 operators tested the basin’s potential for unconventional production during 2012. (For reference, over 600 operators were active in conventional activity that same year.) And while unconventional drilling comprised only 13% of all activity in the basin that year, it supported two- thirds of the basin’s growth in oil output.