Best oil-drilling bargain: Midland Basin
The costs of producing oil in the major U.S. shale fields have dropped by almost half over the past two years, but none as much as West Texas’ Midland Basin.
Drillers in the Midland, the eastern lobe of the prodigious Permian Basin, produced oil for about $71 a barrel in 2014, according to a new report by the Norwegian energy research firm Rystad Energy. Last year, that cost dropped by about half, to $36 a barrel, falling lower than all other U.S. shale fields.
The Permian has led the industry out of the 2-yearold crash in crude prices, providing a field so large and so saturated with oil, production companies have found it economical to drill even with U.S. prices at less than half the 2014 peak of about $107 a barrel. Crude settled at $50.60 on Friday in New York.
When it comes to drilling future low-cost wells, “the Permian Basin is really unparalleled in the Lower 48,” said Jackson Sandeen, an analyst for the energy research firm Wood Mackenzie.
Oil companies have now sent more than 400 drilling rigs back to U.S. oil fields, doubling the count since the low point in May, according to the Houston oil field services firm Baker Hughes. Just this week, the rig count jumped by 15 — the 11th straight week of increases.
The Permian accounts for nearly half of all the operating rigs in the U.S. This week, drillers moved their 319th rig into Permian. The field with the next-largest number, South Texas’ Eagle
Ford, had 73.
U.S. crude prices fell below $50 a barrel in recent weeks, but the dip hasn’t set back drilling in the Permian, analysts say. Some of the biggest operators there — Irving-based Pioneer Natural Resources and Houston-based Apache Corp., among others — used a technique known as hedging to lock in higher prices for future oil sales after prices hit nearly $55 a barrel earlier this year.
Still, analysts warn that some of the cost savings hard-won by oil producers won’t last. More than half of the savings comes from lower drilling prices, as operators have squeezed oil field service companies during the slump, Rystad said. Improved efficiency has cut another quarter of the costs.
But as drilling continues to ramp up — U.S. oil production increased by 60,000 barrels a day in January, the Energy Department said on Friday — cost inflation will too, especially in areas like the Permian, as services companies gain leverage to demand higher prices for drilling and supplies.