High oil prices, drilling technology fuel Permian Basin boom

By BRETT CLANTON

LOVING COUNTY — One of Texas’ oldest oil-producing regions is undergoing a rebirth — again.

But unlike past booms, the latest surge in activity in the storied Permian Basin is being driven by more than just high oil prices

Consider the Bone Spring formation, west of Midland. On a recent day, Anadarko Petroleum Corp. was drilling a well in a deep and complex field that would have been unthinkable a decade ago.

It will go two miles down, turn and then go another mile sideways, in pursuit of a narrow band of rock, dense as concrete, that has been clinging stubbornly to its oil for millions of years.

Wells like these are costly – Anadarko said its wells can run upward of $6 million apiece – but they are among the most prolific in West Texas in recent memory.

“We thought 1,000-barrel-per-day wells were a thing of the past out here,” said Bill Martinez, Anadarko’s business adviser for worldwide operations, standing at the foot of the Precision 303 drilling rig at a remote site 30 miles west of Kermit. But since The Woodlands-based oil company began drilling the north end of Bone Spring in 2009, it has seen them routinely.

Bone Spring is one of several emerging oil plays that are helping slow down years of declines in the state’s oil output, luring major producers back to the region and spawning the latest oil boom in West Texas.

They are part of a comebackfor the Permian Basin, a vast layer of Permian-era sedimentary rock underlying West Texas and southeastern New Mexico that has been pumping out huge volumes of crude since the 1920s and still produces one in five barrels of the nation’s oil.

“There always seems to be one more place where the oil is hiding,” said H. Scott Hamlin, research scientist associate at the University of Texas’ Bureau of Economic Geology.

The revival comes as $100-a-barrel crude prices are giving producers greater incentive to hunt for oil and low natural gas prices have them dialing back in gas fields. With the shift, oil and gas companies are transferring expertise honed in recent years from operating in complex shale gas formations to mature oil fields and emerging ones elsewhere.

Technical advances

In West Texas, producers mostly are re-entering areas like Bone Spring where drilling has taken place for decades and applying the new techniques. But they’re also targeting unconventional formations like oil-rich shales that were long thought unfeasible to exploit.

“We’re doing things we didn’t think would have been possible five, six, seven years ago, and I think we’re still very early in the game,” said John Christmann, regional vice president for the Permian region at Houston-based Apache Corp., one of the biggest producers in the area after acquisitions last year.

The key technical advances have come in two areas:

Horizontal drilling has enabled producers to be more precise in hitting targets than traditional vertical drilling.

And advanced hydraulic fracturing methods have allowed industry to crack open multiple sections of dense rock quickly, while in the well, and suck oil and gas from all the zones, making development more economical.

The biggest lesson learned in natural gas shale plays was how to pair the technologies efficiently to reduce costs.

Chevron Corp., for instance, is now drilling wells in the Wolfberry section of the Permian faster than competitors as a result of what it learned in tight gas fields in Colorado’s Piceance Basin, said Mitch Mamoulides, Permian South Area manager for Chevron.

That’s partly why the San Ramon, Calif.-based oil giant plans to drill more than twice as many wells in 2011 in the Permian as the 100 it drilled there last year, he said.

Rising production, costs

Other oil companies, including Apache, Occidental Petroleum, Anadarko, Concho Resources and Pioneer Natural Resources, are also ramping up in the Permian.

“If you go back just a couple of years ago, we were running just a handful of rigs out there; now we’re running 20,” said Don DeCarlo, senior vice president and western division general manager of Oklahoma City-based Devon Energy, which plans to spend twice as much in the Permian this year as last and expects its production from the region to rise 20 percent.

But producers say operational costs also are rising in the Permian. Indeed, many projects would not be feasible if crude prices were to pull back sharply from today’s levels.

“I think you get south of $70, it becomes pretty challenging,” said Mark Ellis, CEO of Houston’s Linn Energy, which has been expanding rapidly in the Permian since 2009.

With crude prices soaring, however, even marginal projects have been getting the green light.

Texas oil output last year increased nearly 4 percent to 362,000 million barrels, reaching its highest level since 2002, due to gains in the Permian as well as South Texas’ Eagle Ford Shale, according to the Railroad Commission of Texas, which regulates the industry.

A continuing trend

This year, activity levels are on pace to beat it, and the upward trend could continue beyond that, said Commissioner David Porter. “We are expecting oil production to increase for the next two or three years,” he said.

While the gains won’t put Texas anywhere near its 1972 peak production of 1.26 billion barrels, they have brought a boom mentality back to Midland, the hub city for oil and gas activity in West Texas.

The unemployment rate is below 5 percent and the housing market is tight as new workers move in.

But after living with the ups and downs of the oil industry for so many years, Midland natives like Bill Underwood know the good times won’t last.

Experience tells the 59-year-old real estate agent that each boom is followed by a bust, and that Midland inevitably will take another punch to the gut.

For now, however, Underwood says he’s enjoying the moment. Flashing a smile, he said, “Our turn has come around again.”

brett.clanton@chron.com

7 Comments

  1. luckyone

    The Obama Regime will shut it down.

    #1
  2. Cris

    Did someone stomp the last remaining rare lizard? Can’t let a reptile get in the way of progress for humankind!!!

    #2
  3. Frank Bowers, FIC. Austin, TX 100% DAV, FIC

    First off “lucky one’ the weed is killing you, so S T FU. POOTUS Obama will have little to do with the units making it or not.
    Although, POTUS Obama is not taking bribes as gw and dickie boy did. Now to clear your brains cells what few you have left, I did not vote on the man but as an old military man, we always reserve our remarks about a president until he is out of office out of respect, IDIOT.

    “CRIS” It is so funny you mentioned the foreign lizard, many if not most know nothing of it, and the fact it is on the endangered species.

    My Grandson while working ( For Chatmans out of Leander, TX) in Eastern Nevada killed a land turtle, which was on the endangered species) of some nature. The company had 70 people looking our for the turtles and pay them 20.00 an hour to do so. The first one they killed the company was fined 500,000$’s the second one they kill cost another 500,000$ so Mr. Chatman shut the job down and my grandson lost his job. He was to go to west Texas but they heard of a lizard up there so he is now going to South Texas sometimes next month, He hopes.

    Frank Bowers, FIC, 100% DAV, Austin, TX 78734

    #3
  4. Peter

    I hope those people who get all bent out of shape when they see oil companes report billions in profit take notice that these wells are costing $6 billion.
    .
    Oh, and Cris, you might want to pick up a book about natural history and notice that millions of species became extinct PRIOR to humans. Should it be our goal that we fight mother nature to ensure no other species ever goes extinct again? I have no doubt that human activity causes the extinction of other species, but how many times is that just accelorating the inevitble. Without humans, how much longer would that lizard be around? Additionally, how many species, have been responsible for the elimination of another? Once again, if you were to read any natural history books, I’d bet you’d find many, many, many expamples of a species that displaced another causing it to go extinct. What do you think?

    #4
  5. Zexufang

    Hey Cris if the dumb lizard cannot move out of the way… don’t you believe in evolution?

    Extinction is a NATURAL process.

    #5
  6. Avery

    Nice, now they can tear up the most wonderful part of Texas for oil, instead of putting wind turbines on it. Progress?

    #6
  7. ntangle

    The most wonderful part of TX? Have you ever been there? It looks more like a good place for a nuclear waste disposal site. No wait, they already have one near there, in NM.

    #7