Bousso: ROI-Permian will retain US oil crown after peaking even though it has reached its peak
The Permian Basin is set to reach its peak oil production in December. This will be a turning point for the U.S. Shale Boom that has reshaped the global energy markets over the last 15 years. But drilling innovations will ensure that the output of America's most prolific patch of oil will remain stable for many years.
In its latest Short-Term Energy Outlook, the U.S. Energy Information Administration reported that the Permian Basin, which spans West Texas, and Southeast New Mexico, will produce a record 6.76 million barrels of oil per day in December. This is only slightly more than November's production. The U.S. Energy Information Administration said in its latest Short Term Energy Outlook that this monthly figure could never be topped because most of Permian’s top-tier oil acres have been tapped.
The improved drilling technology allows firms to explore deeper and newer formations. This means that current production levels are likely to be maintained for many years. Previous warnings about a sudden decline in shale gas have been disproved.
Far from Over
Since the shale industry began to take off in 2010, the Permian basin has been at the heart of American shale production, helping the U.S. achieve the status of the world's leading oil producer by 2018. In 2025, this basin will account for almost half of the total U.S. oil production of 13.6 millions bpd. Permian Production rose by 400,000 bpd in December. This is especially eye-catching since U.S. Oil Prices dropped below $60 per barrel for the first time this year.
The Permian's production would have plummeted at those prices earlier in this decade, but things have changed. According to the EIA, the number active drilling rigs dropped 15% from the previous year's third quarter, despite production increasing. The EIA says that this shows the industry's?resilience and efficiency in a low-priced environment. The EIA is hammering this point home by predicting that Permian production will increase next year on an annual basis to an average 6.56 million bpd. It also predicts a sharp fall in Brent oil prices, from $69 per barrel in 2025 on average to $55 in next year. This level has historically been a difficult one for many producers to profit at.
BIG BOYS PLAYGROUND
This resilience is partly due to the fact that the players of the shale industry have changed. In the 2010s, the Permian was dominated by smaller producers. Today it is dominated by a few U.S. oil companies including Exxon Mobil and ConocoPhillips. In recent years, they have acquired smaller competitors in multi-billion dollar deals. Exxon acquired Pioneer Natural Resources for $60 billion in 2024, and Conoco bought Marathon Oil for $22.5 billion the same year.
Consolidation has allowed companies to innovate and cut costs. This allows them to better withstand price drops. Exxon is one of the most notable examples. It announced on Tuesday it would double its Permian gas and oil production between 2024 and 2030, to 2.5 million barrels equivalent per day (boepd). This represents an increase of 200,000 boepd over?last year’s production forecast.
Exxon CEO Darren Woods stated in a presentation Tuesday that the company uses patented lightweight proppant for improving hydraulic fractures, and artificial intelligence software for better directing drilling paths. This can extend the range lateral wells up to four miles (6.4km).
Woods stated that such innovations will reduce drilling costs by 40% and increase oil recovery rates by 50% in wells between 2019 to 2030. Chevron is using a new technique to fracture underground rock in three wells at once, reducing drilling time and cost.
Exxon-Chevron's Permian oil production costs are now around $30 to $40 per barrel. This is lower than the average industry cost of $62.
The Permian Basin is not likely to record the same stellar growth rates as it did in the last decade. However, its production will plateau at an extremely high level. This means that this region is expected to remain the backbone of the U.S. Oil Industry for many years to come.
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(source: Reuters)
