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Persistent Production Uptick in the Permian Basin05/17/2022
No sooner had the crude prices soared above $100/bbl than the industry professionals believed in an incredible growth of drilling activity in North America’s largest shale patch. Analysts speculate that additional output of 500,000 barrels of oil daily would become a significant part (4%) of overall U.S. daily production. That is going to flatter oil and gasoline prices.
In spite of the raised pumping activity in the Permian Basin for the oil-thirsty countries, it is considered that the shareholders' returns and drilling costs would be in sight of producers.
Drilling permits in the Permian Basin are persistently growing, averaging approximately 210 at the beginning of April. Moreover, the permits trend is noticed as an all-time high as a total of 904 horizontal drilling permits were awarded last month.
Although weekly horizontal permit approvals have occasionally spiked above 200 in recent years, permanently elevated levels from regulators in Texas and New Mexico are unprecedented so operators are eager to expedite their development plans, trying to intensify the activity level in these areas.
Due to the growth in permit release, operators can increase the number of rigs in the second half of 2022. It predicts a noteworthy increase in supply capacity from the beginning of 2023.
Growing every day, the crude industry gives plenty of opportunities to develop different companies linked to it. Nowadays, learning and analysing the current situation and predicting the future development become easier with early activity tracking, a new service recently launched by Rextag. It allows to monitor well pad clearing, drilling operations, fracking crew deployment and completions with new data collected approximately every 2 days with the help of satellite imagery and artificial intelligence.
Rextag's Pad Activity monitor (#PAM) assists to learn about potential increases or decreases in oil and gas production months ahead of others and how potential volumes could impact storage and transportation across the Permian Basin.
This service cuts down activity reporting lag times by at least 98%, from 120-180 days down to just 5-8 days. Customers have access to reports, charts, tables, and mapping visualizations via Rextag’s Energy DataLink easy to use web-based application allowing users to filter, download and identify activity on a map or data table. Additionally, customers will be able to set up daily, weekly, and monthly email report notifications.
The time between permit approval and the first day of drilling depends on the individual circumstances of producers, though the current situation indicates that drilling is expanding in the next months. It could not be considered as a temporary surge associated with major permitting round timings overlapping, as Permian drillers’ plans will probably be upheld in the next weeks.
To adduce evidence to it, there is an increased number of approved permits recorded by large public and private operators in the Permian Basin even though independents took the lion’s share of permits scoring 500 in March.
Moreover, the private operators are maximizing the production, exploiting half of the total rigs in North America, as the increased oil price is attracting their attention. They also secured more permits in March compared to the average rate in the last year.
While the increase in drilling will result in higher production, U.S. shale producers will have to overcome several hurdles including labor shortages and supply constraints.
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In the midst of the high prices and the U.S. government’s pushing, in the last week, the number of oil rigs increased by 5 and in total makes 557, its highest since April 2020, according to Baker Hughes Co BKR.N. Concerning the gas rigs, they gained 2 to 146, their highest since September 2019. Moreover, crude production was aimed to rise from 11.2 million barrels per day (bpd) in 2021 to 12.0 million bpd in 2022 and 13.0 million bpd in 2023, according to federal energy data. Given that this growth has been expected, recent global market changes make forecasting the output even more challenging. Learning how production will change is easier with early activity tracking, a new service recently launched by Rextag’s Pad Activity monitor (PAM). The overall amount of rigs in the U.S. would grow to an average of 684 in 2022 and 783 in 2023, due to U.S. investment bank Piper Sandler forecast. As Baker Hughes claimed that compares with an average of 478 in 2021.
The EIA forecasts that total output in the main U.S. shale oil basins will increase 142,000 bbl/d to 8.761 million bbl/d in June, the most since March 2020. Oil productivity in the Permian Basin in Texas and New Mexico is supposed to go up 88,000 bbl/d to a record 5.219 million bbl/d in June, as the U.S. Energy Information Administration (EIA) announced in its report on May 16. In the largest shale gas basin, the productivity in Appalachia in Pennsylvania, Ohio and West Virginia will grow up to 35.7 Bcf/d in June, its highest since beating a record 36 Bcf/d in December 2021. Gas output in the Permian Basin and the Haynesville in Texas, Louisiana and Arkansas will rise to record highs of 20 Bcf/d and 15.1 Bcf/d in June, respectively. Speaking of the Permian future output, putting hands on upcoming changes in production has recently been made easier with the new Rextag's service - Pad Activity Monitor. Thanks to satellite imagery and artificial intelligence, customers are able to monitor the oil and gas wells and are provided with near real-time activity reports related to drilling operations. However, it is noticed that productivity in the largest oil and gas basins has decreased every month since setting records of new oil well production per rig of 1,544 bbl/d in December 2020 in the Permian Basin, and new gas well production per rig of 33.3 MMcf/d in March 2021 in Appalachia.
Occidental Petroleum is looking into selling Western Midstream Partners. OXY focuses on natural gas pipelines in the U.S. and is worth around $20 billion, including its debt. This sale could help the company cut down its large debt of $18.5 billion, which grew due to buying other companies. Recently, Occidental agreed to buy CrownRock for $12 billion, adding more debt to its books. This comes after its huge $54 billion purchase of Anadarko Petroleum four years ago. The news about possibly selling Western Midstream made its shares go up by 5.7% to $30.81, reaching their highest value since July 2019. However, Occidental's shares fell by 1.6% to $59.56, as part of a wider drop among energy companies.
The Canadian oil and gas sector announced 27 M&A deals in the last quarter of 2023, totaling $4.2 billion in value. The biggest deal of the quarter was Pembina Pipeline's $2.3 billion acquisition of several companies including Alliance Pipeline and Aux Sable Canada. Compared to the previous quarter, the total value of M&A deals in Canada grew by 20% from $3.5 billion and jumped 95% compared to the same quarter the previous year. However, the number of deals dropped slightly by 4% from the previous quarter and was 23% less than the year before.
Rystad Energy predicts that the merged company of Diamondback Energy and Endeavor Energy will produce 819,500 barrels of oil per day in the Permian Basin in 2024. Rystad, an energy research and business intelligence company from Norway, expects the ExxonMobil-Pioneer Natural Resources merger to lead the Permian in total net production for the year, with a projection of nearly 1.4 million barrels per day. Notably, about 53% of this production will be oil. Chevron is set to produce slightly more than Diamondback-Endeavor, with Occidental-CrownRock following closely. ConocoPhillips ranks fifth, with a production forecast of just under 800,000 barrels per day. Chevron's production is 47% oil, while Diamondback-Endeavor and ConocoPhillips have 57% oil in their mix, and Occidental-CrownRock is just below 50%.