Why the Permian shale boom transformed US energy markets

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U.S. shale boom transformed U.S. energy markets

According to the U.S. Energy Information Administration (or EIA), the top seven unconventional oil plays accounted for 95% of domestic oil production growth. They also accounted for all domestic natural gas production growth during 2011–2013.

Permian Basin crude oil

According to the EIA, the Permian Basin in west Texas and eastern New Mexico is the largest crude oil-producing region in the U.S.Permian oil production

Crude oil production from the Permian Basin increased from 850,000 barrels per day (or bbl/d) in 2007 to 1.35 million barrels per day (or MMBbl/d) in 2013. This is an increase of ~60%.

The EIA estimates that the Permian Basin will produce more than 1.7 MMBbl/d of crude oil in September 2014.

The horizontal drilling and hydraulic fracturing application has unlocked huge oil reserves in the Permian. The most productive formations are the Spraberry, Wolfcamp, and Bone Spring.

The number of rigs in the Permian increased from an average of ~450 in 2011 to ~560 in August 2014—up by 24%.

According to the Railroad Commission of Texas (or RRC), historical production from the Permian Basin totaled ~29 billion barrels of oil and 75 billion cubic feet of gas—or ~70% oil by energy content. Most of the drilling activity there is oil-targeted.

Oil prices are more competitive than oil gas. This makes drilling oil more profitable.

Key stocks and exchange-traded funds (or ETFs)

The most active oil and gas producers in the Permian Basin are Chevron Corporation (CVX), Occidental Petroleum (OXY), EOG Resources (EOG), and Laredo Petroleum (LPI). Most of these companies are a part of the Energy Select Sector SPDR Fund (XLE).

In the next part of the series, we’ll discuss U.S. natural gas rigs and their production.

Check out our Energy & Power sector page for more interesting articles on the industry. Learn what’s been happening lately in the sector.

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