Services costs expected to rise in Permian Basin

Redhawk Funds $15M Production and Drilling Project in Permian Basin (PRNewsFoto/Redhawk Investment Group, LLC, Shutterstock)

Costs in West Texas’ prolific Permian basin are rising, as stabilized oil prices drive up production and more companies are competing for the same services, according to a new report from the Houston-based energy research firm IHS Markit.

Companies in the Permian are still able to turn a profit below $55 per barrel of oil, but that could change as the costs of field services rises, according to the IHS report.

“While Permian and Anadarko Basin plays remain in the money, so to speak, lofty acquisition values become more difficult to pay off when the plays require nearly $50-per-barrel WTI to produce a 10 percent internal rate of return,” said Imre Kugler, a senior consultant at IHS.

The pressure of rising service costs seems to be unique to the Permian, at least for now. Increased demand on services and pipelines, and subsequent rising prices, has not made as much of an impact in Texas’ Eagle Ford, North Dakota’s Bakken and Colorado’s Wattenberg basins.

IHS Markit expects that costs per well in the Permian will rise more than 15 percent this year.