Two West Texas plays poised for surge in production, investment

Two plays in the Permian Basin could see a surge in production and together pump 38 percent of the West Texas region’s oil by 2018, according to report released this week by energy research firm Wood Mackenzie.

Exploration and production giants such as Apache Corp., ConocoPhillips, and Chevron are positioned to lead an investment boost in the oil fields, and in five years, capital expenditures could jump 57 percent to $22 billion in the two Permian Basin plays. Together, the Bone Spring and the Wolfcamp plays could pump 1 million barrels of oil per day by 2018, Wood Mackenzie reports.

“The Permian Basin is a very mature region, but now horizontal drilling is allowing operators to go back there and unlock massive resources,” said Scott Pearson, an upstream analyst at Wood Mackenzie. “There’s a lot of hype about big numbers.”

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To put Wood Mackenzie’s forecast of $22 billion capital expenditures in context, Pearson said, the firm also is predicting that oil and gas players will invest $28 billion through the entire Eagle Ford in South Texas in 2013. That would be a quarter of oil capital expenditures in the Lower 48.

One factor driving of the investment surge:  Horizontal wells are a lot more expensive to drill than conventional wells, running up $6 million to $10 million per well compared to $1 million to $2 million for a vertical well, Pearson said.

Still, it could take another $145 billion in capital expenditures to fully develop the Bone Spring play, and another $75 billion before the Wolfcamp is completely cultivated, according to Wood Mackenzie. But in the next five years, the firm expects the Bone Spring to produce 600,000 barrels of oil per day and Wolfcamp to pump 400,000 barrels per day.

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The pipeline of merger and acquisition deals in the Permian Basin has been slow, but as operators fire up development, the region could see joint ventures and smaller-scale acquisitions pick up, according to Wood Mackenzie.

However, “the Wolfcamp and Bone Spring’s complexity and uncertainty around the ultimate potential of other stacked producing formations could deter some potential entrants,” said Benjamin Shattuck, an upstream analyst for Wood Mackenzie, in a written statement. “Even seasoned unconventional operators require 15 to 20 wells to successfully climb the learning curve.”

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