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Just About Every Part Of The Permian Basin Is Unprofitable At $30 Per Barrel
Submitted by Arthur Berman via OilPrice.com,
Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.
Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.
To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the U.S. is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.
The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.
None of these plays are remotely commercial at present oil prices. In the most-likely per-well reserve case, these plays require break-even oil prices in the range of at least $50-$75 per barrel, and current wellhead prices in the basin are less than $30 per barrel.
Figure 1. Horizontal Wolfcamp-Spraberry & Leonard-Bone Spring play location map, Permian basin.
Source: Drilling Info & Labyrinth Consulting Services, Inc.
(Click image to enlarge)
Reality Check: The Claims vs. Proven Reserves for the Permian Basin
Pioneer claims more than 10 billion barrels for its Spraberry-Wolfcamp position, and EOG claims 2.35 billion barrels for its Bone Spring and Wolfcamp plays.
Let’s put that in context.
Total proven crude oil and condensate reserves for the United States as of the November 2015 EIA report are 39.9 billion barrels. So, these two companies claim that they have reserves or resources of more than one-quarter of all U.S. reserves in 3 plays in the Permian basin. According to the same EIA report, the Permian basin has less than three-quarters of a billion (722 million) barrels of proven tight oil reserves.
Right.
Pioneer’s claim is by far the more preposterous of the two but it wasn’t very long ago (May 2014) that EOG CEO Bill Thomas told investors that his company wasn’t really all that into the Permian basin.
Pioneer CEO Scott Sheffield has been making statements for a few years about the Spraberry that ought to give his company’s General Counsel heart seizures.
“The Spraberry Wolfcamp could possibly become the largest oil and gas discovery in the world.”
It is incredible that analysts have not challenged Sheffield’s claim over the last two years that the Spraberry is second only to the Ghawar Field (Saudi Arabia) as the world’s largest oil field.
What exactly do analysts analyze, anyway?
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Shut down all imports and use only US Oil. People will pay more if their brothers and sisters are working. The US produces enough Oil to supply the US economy and export Oil and this administration would prefer to buy oil from this group of trash in the Middle Esat who hate us. Cannot understand such behavior! Do not believe this media, check for yourself and you will see I am riight on US Oil and production and consumption. If the oil fields were owned by Soros, Buffett or Goldman Sachs, you can bet this would happen!
Do a search on "Petrodollar" and prepare to be enlightened.
+1
I'm just glad we're pumping it all out of the ground at $35/bbl so there won't be any left when oil goes back up to $100.
To be honest, I'm not entirely sure if I'm being sarcastic with that comment or not.
I'm glad I'm not the only one. I speculated that the Fed would raise rates and instigate another round of QE a few weeks ago. Looks like my sarcasm can tell the future.
MFL you can't create an artificial market without having other impacts elsewhere........same thing as putting tarrifs on products during the Great Depression.
Look up Smoot–Hawley and you'll see why it doesn't work.
What is "MFL"? I was being a smartass, but know the Fed has ostensibly painted themselves into a corner and will probably seek any port in a storm....at least from my layman's perspective.
Petrodollar is going away, we need to take care of our own. How is that for enlightened? http://www.huffingtonpost.com/alastair-crooke/petrodollar-us-saudi-polic...
Tell us something we don't know.
You took something from the Huffington Post seriously?
Here's one for Texas (I figured that they could use it now):
"Now, when your down on your luck
and you ain't got a buck,
in London you're a goner.
And even London Bridge has fallen down
and moved to Arizona.
Now, I don't know, but I'll substantiate the rumor
that the English sense of humor is drier than the Texas sand.
You can put up your dukes or you could bet your boots
that I'm leaving just as fast as I can
I want to go home with the armadillo,
good country music from Amarillo and Abilene.
The friendliest people and the prettiest women
that you've ever seen.
Well, it's cold over here in London and,
Gad'dum'it, I wish they would turn the heat on.
And where in the world in that English girl
that I promised that I'd meet on the third floor?
And of the whole damn lot, the only friend I've got,
is a smoke and cheap guitar.
My mind keeps roaming, my heart keeps longing
to be home in a Texas bar.
I want to go home with the armadillo,
good country music from Amarillo and Abilene.
The friendliest people and the prettiest women
that you've ever seen.
Well, I decided that I'd get my cowboy hat
and go down to Marble Arch station.
Because, when a Texan thinks he'll take his chances,
you know that chances will be taken, and that's for sure.
And them Limey eyes, they were eyeing the prize
some people call Manly Footwear.
And they said: "You're from down south
and when you open your mouth,
you always seem to put your foot there."
I want to go home with the armadillo
good country music from Amarillo and Abilene
The friendliest people and the prettiest women
that you've ever seen."
Are you high?
Gotta Love Jerry Jeff.
Tax the imports and stop taxing our labor!
Lol, what a noob.
some people lurk for 4 years before signing in... some dont. ;-)
Pfffft. Our entire economic system would break down if we quit importing oil. When I say "break down," I mean food wouldn't be getting grown using oil, shipped to processing centers using oil, then shipped to super markets in our Just In Time delivery systems using oil. I mean people would starve to death by the droves.
PS, most of our imported oil does not come from the Middle East. The poster above who said "Do a search on "Petrodollar" and prepare to be enlightened" is somebody who you should listen to.
I'm OK with starving people at this point. It's a shitty attitude, I freely admit, but if you haven't been preparing by this point, you deserve that outcome.
I'm not OK with it, but I'm not not OK with it. It is something that is going to happen. We are going to face Mother Nature's eugenics program, and it ain't going to be pretty.
Yeah, I'm in 100% agreement. Speaking of Mother Nature's eugenics program, we are long overdue for a plague. If nobody can afford healthcare, so much for vaccinations (or worse still, diluted antibiotics). We've had a hundred years since the Spanish flu, and the population has exploded since then. The next real plague will be a doozy, especially anything with a 50% or greater mortality rate. You can essentially kiss the developing nations goodbye.
Uhh Houston? The USA is not what you think it is, friendo.
"People will pay more if their brothers and sisters are working. "
LMAO
Meh. Russia is taking out the ISIS cartel busters. Obama and Yellen are going to take the USD down. Oil will be over 60 in 2016.
A little more? You oil fags think that the proper price is like $100 a barrel. More than a little more. Grab a blue shirt and bone up on the difference between 1080p and 4K tv's. I over paid for 8 years so you people could shoot loads around like Peter North at an orgy. I'll enjoy this cheap oil and wish you good luck. I hope you all saved for this totally foreseeable "rainy day".
Engoy cheap oil at the expense of American workers? Hope you keep your job! Its thinking like this that took our Manufacturing and moved it to China and now to Vietnam. Wait till these same countries buy up our farmlands and you will be eating dog food!
Yes,,,Too bad people don't have that attitude every time they buy at Wally World, Sears K-Mart or any of those Chinese junk dispensing shyster retailers
As an aside I worked in the oil industry (off shore in the Gulf of Mexico) during the 1980's. Had big layoffs back then due to prices. These things are cyclical.
Only drill in the profitable areas. Problem solved.
(Insight like this is why they pay me the big bucks.)
Oh, you mean Iraq? ;)
These types of articles give the impression that production will stop because it is not "commercial." Biggest lie every told.
When the guy who needs $50 oil goes bankrupt, the assets are purchased and the new guy can produce at a much lower level. It is not true in all instances but it is true for the vast majority of circumstances.
The only thing that will taper oil is as the wells lose production capacity and new wells cannot be drilled as it is not commercially viable. Until then we should see $10 oil and 88 cent gas.
If so, we go back to the days before Big Oil got George The First elected. After that it was off and running to 100 buck oil.
Those oil jobs should never have existed in the first place! The $140 price was completely engineered by Wall Street assholes. That started the new rush to punch holes in every pristine forest left in this country. Don't cry about job losses when the price returns back to some sense of reality. I'm done paying extra so energy companies can rape the land to earn billions.
Foolish blog contribution with little meaningful insight. Are we talkin' bout lifting costs of >$30 per barrel? Finding and developing costs of >$30 per barrel? And can this capacity, if uneconomical @ $30, be conveniently shut in so that it may be brought back online in <90 days when the price of oil jogs to $60/barrel? Proven reserve estimates change, and the PV-10 calculations are re-done every year (just in time for the company's 10-K. Investors know these numbers go down with a decrease in the price of oil. Find some new info and bring it here. Otherwise, blow it out into the 'lamestream media'.
So.......bottom line..... the Arabs win this war?
When your country is literally a slab of land floating on a crustal layer of liquid gold that easy to extract, yes you win the war to pump.
There is no way to turn crushing rock and squeezing it for drops of oil as profitable as simply sticking a straw into a lake of oil and pumping.
Only way American energy industry can be saved is through a massive war disrupting global supply.
Only way American energy industry can be saved is through a massive war disrupting global supply.
And having the sons of VP's head such endeavors...
But wait!!! Were not at war with ISIS??? Its oil were fightin for???? well golly geee willikers.
They just lose slower then we do.
1) Fossil Fuels are in end game... Look around coal companies around the world are in bankruptcy,
and oil E&P plays are going south fast.
2) Electric cars are about 3 years away from providing the median person with significantly more affordable transportation then Gasoline. Judging by the air in Beijing, they will be cracking the whip to clean up the vehicle fleet before it poisons everyone.
3) People like the idea of buying a bunch of solar panels and an EV Car and self powering... That's going to be a big thing in the developing world.
Profit and cash flow are different things. If there is outstanding debt that requires an interest payment, then production will continue because it will generate cash flow to pay the interest. Sure, the entire operation will operate at a loss (which includes things like depreciation expense on the facility and equipment), but there will should be some net cash flow to help service the debt.
In general, that's why production is still going full speed in the US. Others might call it being between a rock and a hard place.
I <3 cheap gas. Fuck Big Oil, those fuckers should just relax and fall back on their $40 billion a quarter profits they ued to screw us out of.
The gradual and DELIBERATE long-term strategically planned generational continuous debasement of Money. From Classical Gold Standard(Full Purchasing power) - Gold backed certificates('apparent' full purchasing power), then unbacked debt notes(no real backing), the petrodollar(temporary fix), then to current $30.00 oil, to pretty soon ZERO $ crisis tipping point. The Zimabwefication of the World Reserve Currency is fast progressing. After gold backing was removed from the dollar in 1971, is it any wonder why inflation skyrocketed shortly thereafter under Jimmy Carter? The culprit is Central Banks who TAG TEAM on their respective printing of 'unearned debt notes' that only 'look' like MONEY which the people still largely but falsely still view as REAL money. Not in eternal store of value measured in ounces. It is a disservice to price the metals in 'paper.' Spot price means 'paper' not the real and existing non counterfeit tangible in your hand.