CASE STUDY: PUMPS, VALVES & HYDRAULICS


MARKET ANALYSIS: PIPELINE CHALLENGES IN THE PERMIAN BASIN JAMES STANCZAK, VICE PRESIDENT BUSINESS DEVELOPMENT AND MARKETING, AND BRYAN VOYTILLA, GLOBAL PRODUCT MANAGER


The Permian Basin in West Texas (USA) is known world-wide as one of the most prolific sources of oil & gas in the world. It has been producing oil since the early 1920’s, and shows few signs of slowing down. Over 28.5 billion barrels of oil and 80 trillion cubic feet of natural gas have already been extracted from the Permian; and experts believe another 40 billion barrels of oil and 18 trillion cubic feet of natural gas remain.


The Permian Basin stands as the largest producing area of oil in the US, amounting to almost 14% of total US production. It incorporates other basins such as the Delaware Basin, Midland Basin and Central Basin as well as other distinct basins, shelfs, platforms, arches and atolls that make up the 200-mile wide by 300-mile long area. The basin is estimated at 2.5MMB/D, according to EIA, which includes the continued production of legacy wells and new well production brought on by recent activity.


Although the oil & gas industry enjoys a relatively stable price throughout its history, the industry is continuously faced with intermittent periods where swings in the oil price impact production activity. This is particularly true in the shale- producing regions of the US, where production can be shut-in and brought on relatively easily and quickly. Thus, during downward price cycles, activity in these regions practically disappear and when prices increase, activity quickly picks up.


The Permian Basin is no exception to this trend, where the boom and bust cycles have had severe impact on the economies of Midland/Odessa, as well as their residents and businesses. Today, however, with the OPEC production agreement in place (and being extended), the global oil supply & demand equalizing, the OECD oil inventory glut slowly receding, global oil markets have stabilized, and prices for the benchmark WTI are in the high $40’s to $50’s per barrel price; and the Midland/Odessa area is seeing another period of expansion.


Most Permian producers see a good return at current price levels, with well/field production


p30 | www.sosmagazine.biz | July 2017


costs averaging as low as $30/bbl. In fact, many experts indicate the Permian is one of the lowest cost producing areas in the US. These factors, combined with OPEC countries not considering increasing production (and potentially lowering global oil prices) due to trickle-down effect it would have on them facing higher draw-downs from their already diminished sovereign wealth funds to further support their economies, creates a stabilizing effect and a more acceptable investment environment.


This stability is also working to the advantage of US producers, particularly in the Permian. Since November 2014, where 568 rigs were drilling in the Permian (the most recent peak activity), to May 2016, where 134 rigs were under contract (the most recent lowest point of activity), to 368 rigs as of last week, you can see the huge changes of drilling activity over the last 2 years, and the huge increases in drilling activity that is now positively impacting West Texas. In fact, the most recent EIA forecast shows Permian new well production of 214k Bbl/day (for July ’17) that offsets legacy well production declines, netting an overall production increase of 65k Bbls/Day.


Not only has increased price and stability played a part in the Permian resurgence, new technology has helped lower the production cost in the Permian and elsewhere. Enhanced seismic and mapping technologies, bigger and more efficient drilling equipment, improvements in drilling bits, horizontal drilling techniques,


and the continued enhancement/refinement of hydraulic fracturing have all played an important part in making the Greater Permian Basin a viable producing area in the US.


The Permian seems to surprise even the most experienced producers. Recently, Apache announced a discovery in the region it calls the Alpine High that is estimated to contain at least 3 billion barrels of oil and 75 trillion cubic feet of gas. This was on land where others considered it too geologically complex to drill economically.


From late 2014 until recently, when prices were low and “times were hard”, US producers focused on minimizing their risk and investment and concentrated on drilling lease areas that afforded good results and contained adequate support infrastructure – where sufficient trucking, terminals, gathering pipelines, gas plants, tank farms, supply stores, service company locations, etc. were plentiful. Thus, much of the drilling activity was centered around areas where wells existed, and support infrastructure was plentiful.


Now, however, with higher oil prices combined with reasonable lease, drilling and service costs, many producers are venturing into areas where little infrastructure exists, and where it needs to be developed. This is good news for suppliers of PVF, as well as major equipment manufacturers such as pumps and compressors, as well as EPC’s for the construction of new plants, pipelines and terminals.


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