Permian Shale Oil Production Up in September: Who Benefited?



Permian shale oil production

On October 13, 2015, the EIA (U.S. Energy Information Administration) released its latest Drilling Productivity Report. The EIA estimates that the Permian Basin’s crude oil production amounted to ~2.0 MMbpd (million barrels per day) in September. This is only 0.8% higher than August’s production total. However, it’s a 20% rise over production in September 2014. In September 2015, Permian shale crude oil production rose month-over-month for the eighth time in a row.

Permian shale oil production rose from 845,600 bpd (barrels per day) in September 2007 to 2.0 MMbpd in September 2015. That’s a rise of 135% in eight years.

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What does this mean for Permian producers?

Higher crude oil production should benefit energy producers operating out of the Permian Basin. Active oil and gas producers in the Permian Basin include Concho Resources (CXO), RSP Permian (RSPP), EOG Resources (EOG), Laredo Petroleum (LPI), and Matador Resources (MTDR). RSP Permian accounts for 0.1% of the Vanguard Energy ETF (VDE). EOG Resources accounts for 3.3% of the iShares US Energy ETF (IYE).

If the Permian Basin’s oil production rises, midstream operators transporting oil and gas in this region will also benefit. This includes MLPs such as Magellan Midstream Partners (MMP), Regency Energy Partners (RGP), Plains All American Partners (PAA), and Energy Transfer Partners (ETP).

Rigs in the Permian Basin

In September, the number of rigs working in the Permian Basin was 251, down from 254 in August. There were 565 active rigs in the Permian Basin in November last year, the highest rig count in seven years. The number of active rigs in the United States fell significantly in the past year. For a more recent analysis on Permian rigs, read Permian Basin Oil Rig Crash Led the Way in Week Ended October 9.

Monthly additions from one average rig

The EIA calculates that the average Permian Basin rig added production of 365 bpd in September 2015, a 59% rise since September 2014. In the past eight years, the additional production per rig rose 5.8x.

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

The Bakken is one of the most prolific crude oil shales in the United States. In the next part of this series, we’ll see why.


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