You Wanted the Best, You Got the Best: Why the Permian Basin is Poised to Thrive Regardless of What OPEC Does

This post is also available at my LinkedIn page. 

The last several years in the oil industry have arguably constituted what I would refer to as catharsis – a painful but needed purification or cleansing process of sorts. Unless you have been living in a cave for a significant period of time, it has become clear that the Permian Basin is poised and primed to succeed in pricing environments ranging from $45/BBL and higher, albeit for different reasons depending on whether the going price is languishing in the $40s or ripping in the $70s and beyond.

When prices were high, activity levels in the oil patches across the United States spiked, but especially in the Permian Basin. Horizontal drilling came into vogue in the last decade or so, and operators were primed to drill in any geologically great, good, and even mediocre acreage that they could get their hands on. Hot plays went for more money (and obviously still are), so there were lease and mineral buyers fighting for acreage alongside the big boys of the industry, sowing the seeds for a highly competitive landscape.

However, even when prices are depressed, the Permian Basin is still well situated. As most of us know, our breakeven point between making and losing money on production is generally much lower than other oil fields. First, consider breakeven prices calculated based on county and play (Credit: MarketOnChart.com):

The above chart from this past September demonstrates average breakeven costs both by county and by play in the Permian, and only the most cursory glance reveals that a majority of county/play combos are at least somewhat profitable in the current climate (with the caveat that individual well economics can vary greatly in either direction for a whole host of reasons). The above Permian-centric chart is juxtaposed with the following chart demonstrating breakeven on production on a global scale (Credit: Statista):

Ultimately, a combination of lower breakeven economics in comparison with many other oil fields and plays, as well as the efficiencies forcibly realized by the 2014-15 oil pricing crash, will make the Permian Basin the place to be in oil production whether oil is languishing at $45/BBL or flying high at $100/BBL.