Second Life for an Old Oil Field
By Tow Fowler
Nov. 19, 2013
One of Texas’ oldest oil fields, in decline for decades, has become one of the hottest places in the country to drill for crude, as energy companies create clusters of wells with layers of horizontal branches.
The Permian Basin — 86,000 square miles centered on Midland, Texas — has been pumping oil since the 1920s, though production peaked at about 2 million barrels a day in the early 1970s. For decades, geologists have known that oil could be found in different layers of rock piled up like a stack of geologic pancakes.
But now drillers are starting to tap those layers simultaneously from a single site — and are committing billions of dollars to do so.
Occidental Petroleum Inc., the largest producer in the Permian, said it plans to spend $500 million there in 2014 and has created a new “exploitation team” to identify more drilling locations.
Concho Resources Inc., one of dozens of smaller producers focusing on the Permian, is accelerating its growth plans over the next three years to double oil output by 2016.
And Apache Corp., the second-largest producer in the region, said its daily oil production in the Permian grew 18% to hit a record; it plans to increase its investments there following the recent sale of operations in Canada and Egypt.
“I think the Permian is going to have years of surprises in it and most of them are going to be good,” Apache CEO Steven Farris said in a conference call with analysts earlier this month.
Because of the Permian’s many thick layers — Wolfcamp, Cline and Spraberry are the names of just a few — a group of wells on one site can potentially tap into several different oil reservoirs, each wellbore going down just far enough to reach its targeted layer and then turning sideways.
About 70% of the wells drilled in the Permian this year are vertical, but as companies better understand the geology they will increasingly start to drill horizontally, allowing each well to tap more oil, said Robert Christensen, an energy analyst with Cannacord Genuity.
Drilling in the Permian isn’t easy, however. In many areas the surface layers of rock are much harder than in some other oil fields, so it can take longer and cost more to drill. A sharp fall in oil prices could make operations there uneconomic.
And some of the layers are low quality compared with the Bakken Shale in North Dakota and the Eagle Ford shale in Texas, where oil production has soared in the past few years thanks to horizontal drilling and hydraulic fracturing.
Permian oil has grown more modestly, from about 850,000 barrels a day in 2008 to 1.3 million barrels this year. But analysts expect the daily rate will rise more — to as much as 1.9 million barrels per day by 2018 according to Bentek Energy, an energy-market analysis company.
Spending in the Permian Basin has already more than tripled since 2008, from about $6 billion to $18 billion in 2012, according to research firm Wood Mackenzie, and is expected to top $19.8 billion by the end of 2013.
For energy companies, one benefit of working in a place with established oil wells is that drillers don’t have to rush in before their leases on land expire; most leases automatically continue in effect once oil starts coming out of the ground (the industry calls this “leases held by production”).
So companies including Occidental, ConocoPhillips and Pioneer Natural Resources say they are working slowly and methodically to understand the geology and the best spots to drill.
That leads some experts to say the boom in the Permian is just beginning. “We’re just in innings two or three of the game,” said Matt Portillo, a research director at Tudor Pickering Holt & Co.