The Rise and Fall of Crude Oil Production and Its Impact on the Permian Basin

The Rise and Fall of Crude Oil Production and Its Impact on the Permian Basin

All eyes are on the U.S. oil production rates and prices per barrel. Where will they go next?

According to an article published in Forbes magazine, U.S. Crude Production Returns to Record Levels, the recent attacks on Saudi’s oil infrastructure had a lesser impact on the world’s oil markets than expected. The reason? Over the past decade, oil production in the United States has experienced steady and, at times, explosive growth. The resulting oil production stabilized world markets despite recent events and has kept all eyes locked on the future of U.S. oil. The price of West Texas Intermediate (WTI) did experience an increase of $2, however, bringing the average price to $57 per barrel. (Dallas Fed: October 2, 2019

You may remember an article we posted over the summer that discussed pessimism over oil well productivity. We shared an article from Oil & Gas Journal (OGJ) where Rystad Energy indicated that they could not find sufficient evidence that oil and gas well performance showed any signs of decline. They also concluded that average new production per well matched all-time highs found earlier in the year.

Production growth did appear to be slowing during the summer months, but it has started to rise a bit. Speaking to the constant ebb and flow of oil production, the Energy Information Administration (EIA) reported the final week in September showed weekly U.S. crude oil production numbers that tied the all-time production record of 12.5 million barrels per day (BPD) experienced a month prior.

At the beginning of October, the numbers fell slightly but remained 1.3 million BPD higher than the previous year. During the second week of October, the EIA reported the 332,000 BPD decrease in U.S. crude oil production in July was geographically isolated to the Federal Offshore Gulf of Mexico. This was due to Hurricane Barry and is likely temporary, they say. They also anticipate production to continually increase each month resulting in 13 million BPD in December 2019.

So, where does that leave the Permian Basin and West Texas?

Well, that’s tough to say. Robert Rapier, a senior contributor for Forbes, reports that nearly half of the reported 400,000 BPD increase since the summer months hail from the Permian Basin. However, Permian rig counts continue to fall and that seems to be in line with overall U.S. counts (see chart below). On the other hand, production is climbing and well completions have picked up partly due to recent pipeline capacity.

Baker Hughes Rig Count as of Oct. 4, 2019:

Area Last Count (2019) Count Change from Prior Count Date of Prior Count (2019) Change from Last Year Date of Last Year’s Count (2018)
U.S. Oct 4 855 -5 Sept 27 -197 Oct 5 2018
Canada Oct 4 144 +17 Sept 27 -38 Oct 5 2018
International Sept 2019 1,131 -7 Aug 2019 +127 Sept 2018

Source: Baker Hughes

With all the ups and downs, there’s quite a bit of chatter about a slowdown throughout the Basin. We caught an article on Bloomberg that spoke about the loss of oil jobs in the region, fewer hotel proceeds and a 19 percent drop in drilling. A drop that’s affecting everything from the building of well-site roads to the chemicals used to kill bacteria during hydraulic fracturing.

Slowly, unemployment rates are creeping up as well. According to the Dallas Fed, the rate was 2.3 percent in August, an increase of 0.3 percent from May. The Permian Basin’s unemployment rate is still well below the Texas rate of 3.4 percent, but employment growth has slowed. The number of home sales are also slowing, but the prices of homes are climbing, bringing the median home price to $308,634.

These projections are a far cry from the hustle and bustle the region experienced just a year earlier when radio ads were filled with companies looking to fill shale-patch jobs. We’d love to hear your projections for what’s next in the Permian Basin. In what ways are you feeling the impact of the everchanging oil market? How will this impact your business? Share your thoughts in the comments below.

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