Everything’s Bigger In (West) Texas

As we’ve highlighted before, Texas continues to be a key player in the production of North American energy.  According to the latest numbers, Texas represents 48 percent of all the rigs operating in the United States, with 843 drilling rigs – nearly 400 of which are found in the Permian Basin of west Texas alone. But what’s on the horizon is an even bigger story.

A recent report by the Independent Petroleum Association of America (IPAA) states:

“The Permian accounts for about two-thirds of crude oil production in Texas and nearly 15 percent of that of the entire U.S. It also accounts for more than a quarter of U.S. rig activity.”

Production in the Permian Basin dates back to 1921 when the first commercial well, the Santa Rita No. 1, was spudded, successfully completed in 1923, and capped seven decades later. The original wooden pump jack placed on this well has long been an attraction on the University of Texas campus in Austin, a tribute to the huge role the oil and gas-funded Permanent University Fund has played in supporting higher education in the state.

The Permian Basin, which as recently as six years ago was thought to be a dying province for oil and gas production, continues to rebound in dramatic fashion.  According to IPAA’s report, “Production in the Permian Basin reached about two million barrels per day in the early 1970s, declined to 850,000 barrels per day in 2007, but has since rebounded to 1.3 million barrels per day.”

In the long term, vast amounts of recoverable oil seem virtually endless. According to the Texas Railroad Commission:

“The Permian Basin has produced over 29 billion barrels of oil and 75 trillion cubic feet of gas, and it is estimated by industry experts to contain recoverable oil and natural gas resources exceeding what has been produced over the last 90 years.”

The cycle is beginning again, and in more areas and greater levels than before.  In 2007, the U.S. Geological Survey released an estimate of recoverable reserves of one billion barrels of conventional oil and 1.3 billion barrels of unconventional oil in the Permian Basin.  Yet with advances in drilling techniques, most importantly the introduction of horizontal drilling, the recovery of more oil and natural gas is now feasible and economical in the complex geological makeup of the Permian Basin.  A more recent study in April of 2012 states, “18 existing conventional fields alone hold an estimated additional 2.7 billion barrels of oil that are technically recoverable from the Permian using enhanced recovery techniques.”

The Permian’s revival is unlocking previously known reserves in a once thriving and established producing region, and it’s now exceeding expectations through horizontal drilling.  IPAA’s report continues:

“Of the rigs active in the Permian, nearly 40 percent are drilling horizontal wells, particularly in the Delaware Basin, double the share of two years ago. Vertical drilling is still very strong – more than 6,000 Wolfberry wells have been drilled within the last 10 years, according to the Texas Railroad Commission.”

And in this part of the state, the Permian certainly isn’t alone.

The Cline Shale, the most recent shale oil discovery, spans 70 miles wide and 140 miles long – 9,800 square miles – and lies just below the Wolfcamp play.  One estimate, based on high-level extrapolations using the results of early test wells, projects that the Cline Shale could contain up to 3.6 billion barrels of recoverable oil per square mile, amounting to over 30 billion barrels of recoverable oil.  Many believe the Cline Shale is potentially the biggest shale play in the United States, and if early estimates prove to be even close to accurate, the Cline will be history making.

As we’ve mentioned, oil and natural gas production is not new to this area, where a longstanding network of suppliers, service firms, and other necessities for the business is already in place.  However, with the abundance of untapped resources come conceivable growing pains.  The infrastructure in West Texas is different than that of the Barnett (found in north Texas, near Dallas), where some production is done in the heart of Fort Worth.

West Texas, meanwhile, is rural (much like the Eagle Ford region) and the living infrastructure and road capacity is not yet in place to handle the sizeable development many are predicating.  Cities and counties are rapidly developing plans to accommodate the expected increase in population, learning from the rapid growth in the Eagle Ford.  Local leaders are planning on the front end, forecasting the possible need to build more hotels, housing units, and restaurants.  

As the productive capacity of wells in the Permian Basin was declining or virtually nonexistent just a few years ago, new methods of recovery through hydraulic fracturing and horizontal drilling led to a revitalization of the Permian Basin and opened up new plays for production.  As more wells are drilled, the potential of the Cline Shale will also likely be realized, and the total recoverable reserves – already massive by any objective measure – could prove to be significantly larger than expected.


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