The transition from conventional play to unconventional play has become the defining mark of the revitalized Permian Basin’s oil and gas industry—a transition that poses both rewards and challenges.
The Permian Basin is going through a transformation from exploration for conventional reservoirs to targeting tight unconventional reservoirs. As a result, the Permian Basin is an exciting place to be in 2013. The future looks the brightest it has in decades. The transformation is the result of the application of technology and individual ingenuity, as well as industry ingenuity. Colorado-based BENTEK Energy has recently projected that crude oil production in the Permian Basin will increase by almost 60 percent by the end of 2016 to at least 1,819 Mb/d. The Permian peaked in the 1970s at about 2,000 Mb/d from conventional fields and pay zones. It steadily declined to below 1,000 Mb/d by 2009. Production has since increased to the current production of approximately 1,300 Mb/d.
What is driving this transformation and new growth? A multitude of factors are driving this growth. The Permian is oil-charged from the Ordovician through the Permian stratigraphic column. The large conventional fields were discovered and produced, leading to the peak in the 1970s. Now with the application of hydraulic fracturing and horizontal drilling, the tight unconventional stacked-pay potential throughout the Permian Basin is being re-evaluated. Multi-zone, multi-stage hydraulic fracturing has been applied with great success to the Wolfberry since about 2003. Since that time, multi-stage hydraulic fracturing has been applied to vertical wells in the Wolfbone, Wolffork, Yeso, and several other vertical plays throughout the Permian Basin. Now there is a transformation to horizontal drilling and hydraulic fracturing of the Wolfcamp, Cline, Bone Spring, Atoka, Mississippian, Yeso, Clearfork, and other oil-rich unconventional zones of the Permian Basin.
Conventional fields were dependent on large subsurface structures and stratigraphic traps. As a result, these fields were limited in size by the number of acres in the structure or trap. Because of the heavy exploration of the past, the sizes of these conventional discoveries have continued to decline to often a few hundred acres or less and have significant dryhole risk. In contrast, the unconventional resources that are currently being developed cover hundreds of thousands of acres and in many cases multiple counties. The properly researched unconventional resource plays of the Permian Basin have very low risk of absolute dryholes. Instead, they have a statistical distribution of ultimate recoveries and therefore a distribution of economic outcomes. These differences result in a fundamental change in the risk profile, reserve potential, and economic outcome of Permian plays—a change that bodes well for the continued development of the unconventional resources of the region. The potential is very large. BENTEK Energy’s projection for a 60 percent increase in Permian Basin production by 2016 may prove to be conservative.
However, in spite of the great potential, there are risks and great challenges ahead for our industry and the Permian Basin. We face the ever-present commodity price risk and related service cost increases, as well as crude oil and NGL pipeline take-away issues, gas processing limitations, and an onslaught of federal and state regulatory and tax issues. The Permian Basin Petroleum Association is fully engaged in representing our industry in these state and federal issues that could potentially derail the future growth potential of the Permian Basin.