As the wider public gets a fuller appreciation for the Permian’s productivity, estimates keep climbing, boom towns keep booming, and export prospects pick up traction.
Scott Sheffield says Wall Street never loved the Spraberry, a large oil field in six counties of west Texas, until three or four years ago. But at the Howard Weil Energy Conference in March in New Orleans, he observed, “All they could talk about was the Spraberry.”
Sheffield, chairman and CEO of Pioneer Natural Resources, said his company is returning its focus to Texas and the Permian Basin. “It’s an amazing play that’s been around since 1948, 1949, and has become the world’s top play.” At the Executive Oil Conference in April in Midland, he said the Upper and Lower Spraberry and the Spraberry Dean could hold more than 40 billion barrels of oil, and, he continued, “There could be 100 to 200 billion barrels discovered in our backyard from the Wolfcamp.
In a conference report in the Midland Reporter-Telegram, Jerry Schuyler of Laredo Petroleum added, “We may be underestimating what shales can do.”
The newspaper said the Permian Basin peaked at two million barrels a day in 1973, dropped to as low as 750,000 barrels a day, and now produces about a million barrels a day. By 2015 it could be producing 1.9 million barrels a day.
Producers are watching efforts by the federal government to eliminate the industry’s tax incentives, and they are saying that if these are removed, drilling will be reduced and the public will face higher costs. “It’s a constant battle to educate legislators that these aren’t subsidies,” Matthew Thompson of Apache Corp. told the Reporter-Telegram.
Despite increased domestic production of oil and gas, Harry Henson encourages operators in the Permian Basin to continue to be active in the export market. “We have tried-and-true technology we could send to emerging producing areas in India, China, and eastern Russia,” he told the Midland Reporter-Telegram.
Henson, director of the West Texas Export Assistance Center at UTPB Center for Energy and Economic Diversification, added, “I recommended to oil service companies here that—though they may have exported goods in the past—it’s easy to drop that business in light of strong domestic activity. But keep that export mix because when domestic activity goes down—and it will—that will help weather the downturn.
“More and more companies are exporting because they see opportunities outside U.S. borders,” he continued. “Exports are still going strong, which is why there’s so much hiring going on.” He said much of the Permian Basin exports are oil-related, including rigs, pumping units, and other equipment.
An oil and gas bonanza in South Texas last year supported nearly 48,000 jobs and created overnight “boom towns” cashing in on a $25 billion economic windfall from the Eagle Ford shale, according to a study released in May by the Institute for Economic Development at UT-San Antonio.
An energy rush started with the first drilling in 2008 and grew to nearly 1,700 wells last year, according to a report on the study by the Associated Press. Oil production is up more than six-fold since 2010 to more than 28 million barrels, while gas production has doubled. Scattered across the lucrative play are once-struggling rural counties that must now spend million-dollar tax rolls on infrastructure, development, and education before the boom goes bust, the UTSA study cautioned.
“The thing we’re stressing to communities is sustainability,” Thomas Tunstall of UTSA, the lead author, said. “What will they be left with when this is all over?”
How the shale formation has transformed the 20-county region is seen daily in the convoy of tanker trucks snarling traffic in two-stoplight towns, and apartments that can’t be built fast enough for the oil hands and engineers arriving in droves. Most of the jobs involved actual drilling sites, which employed an estimated 7,500 workers last year. Construction provided about 6,000 jobs, and there were another 1,800 working in scores of new restaurants and bars.
Buddy Garcia has been appointed by Gov. Rick Perry to help guide the Railroad Commission of Texas, the state’s top energy regulator. Commissioner Garcia’s appointment fills a position vacated by Elizabeth Ames Jones in February. Garcia most recently served on the Texas Commission on Environmental Quality, including chairman from September 2007 to September 2009. Earlier he was Texas’ deputy secretary of state and border commerce coordinator.
RRC Chairman Barry Smitherman said, “I am glad to welcome Commissioner Garcia to the Railroad Commission. His wide-ranging knowledge and expertise will be a benefit as we continue to make improvements to the commission’s efficiency and transparency.”
A native of Brownsville, Garcia graduated from St. Joseph Academy and Texas State University in San Marcos.
An online webinar is now available for companies that would like to participate in the FracFocus hydraulic fracturing chemical registry. This informative webinar from the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission explains the company registration process and the procedures for designating system users and managing disclosure records.
Access to the program is available from the website of the Railroad Commission of Texas.
The Railroad Commission of Texas has about $700,000 available in grants to help public fleets, such as those operated by school districts, cities, and counties, purchase new, ultra-low-emission natural gas vehicles.
The grant funding, which the RRC originally received to use for propane-fueled vehicles, has now been expanded to natural gas vehicles and can be used to offset some or all of the incremental costs of a natural gas fuel system on a new or retrofitted vehicle. Matching funds for the purchase of the vehicles must come from non-federal sources. Public fleets statewide are eligible to apply for these grants, regardless of the fleet location’s air-quality classification.
FROM THE RAILROAD COMMISSION OF TEXAS
The Texas average rig count as of April 20, 2012, was 924, representing about 48 percent of all active land rigs in the U.S. In the last 12 months, total Texas reported production was 417 million barrels of oil and 7.2 trillion cubic feet of natural gas. The commission’s estimated final production for February 2012 is 37,326,151 barrels of crude oil and 478,457,488 Mcf (thousand cubic feet) of gas well gas.
The commission derives final production numbers by multiplying the preliminary February 2012 production totals of 32,976,545 barrels of crude oil and 423,413,706 Mcf of gas well gas by a production adjustment factor of 1.1319 for crude oil and 1.1300 for gas well gas. (These production totals do not include casinghead gas or condensate. )
Texas natural gas storage reported to the RRC for March 2012 was 383,705,623 Mcf compared to 313,583,188 Mcf in March 2011. The April 2012 gas storage estimate is 379,204,711 Mcf.
The RRC Oil and Gas Division set initial May 2012 natural gas production allowables for prorated fields in the state to meet market demand of 9,907,788 Mcf (thousand cubic feet). In setting the initial May 2012 allowables, the commission used historical production figures from previous months and producers’ demand forecasts for the coming month, then adjusted the figures based on well capability. These initial allowables will be adjusted after actual production for May 2012 is reported.
FROM THE U. S. ENERGY INFORMATION ADMINISTRATION
The EIA’s most recent forecast of the average U.S. refiner acquisition cost of crude oil in 2012 is $110 per barrel, which is $2.50 per barrel lower than the April forecast, but still about $8 per barrel higher than last year’s average price. EIA expects the price of West Texas Intermediate (WTI) crude oil to average about $104 per barrel in 2012, about $2 per barrel lower than the April forecast, but $9 per barrel higher than the 2011 average price. EIA expects crude oil prices to remain relatively flat in 2013.
With falling global crude oil prices recently, the EIA has lowered the average regular gasoline retail price forecast for the April-through-September driving season to $3.79 per gallon—16 cents per gallon below the level in the April forecast. EIA expects regular gasoline retail prices to average $3.71 per gallon in 2012 and $3.67 per gallon in 2013 compared with $3.53 per gallon in 2011.
The September 2012 New York Harbor Reformulated Blendstock for Oxygenate Blending (RBOB) futures contract averaged $2.99 per gallon for the five trading days ending May 3. Based on the market value of futures and options contracts, there is a 22 percent probability that the RBOB contract price at expiration will exceed $3.30 per gallon, consistent with an average regular-grade gasoline retail price exceeding $4 per gallon in September.
The EIA expects U.S. total crude oil production to average 6.2 million barrels per day (bbl/d) in 2012, an increase of 0. 5 million bbl/d from last year and the highest level of production since 1998. Forecast lower-48 onshore crude oil production in 2012 averages more than 4.3 million bbl/d, reaching its highest level since 1993. Projected U.S. domestic crude oil production increases to 6.4 million bbl/d in 2013, driven primarily by growth in lower-48 onshore production.
Very mild winter weather contributed to natural gas working inventories that continue to set record seasonal highs. April 2012 ended at an estimated 2.61 trillion cubic feet (Tcf), about 46 percent more than the same time last year. EIA’s average 2012 Henry Hub natural gas spot price forecast is $2.45 per million British thermal units (MMBtu), a decline of $1.55 per MMBtu from the 2011 average spot price. EIA expects that Henry Hub spot prices will average $3.17 per MMBtu in 2013.
—contributed by Garner Roberts