Permian producers may need to spend more or consider mergers

As the sweet spots of the booming Permian Basin are drilled, oil companies will need to either spend more money or consider mergers and acquisitions to keep up their crude production volumes, according to the energy research firm Wood Mackenzie.

The conundrum is that Wall Street is punishing the stocks of public energy companies that increase spending and make corporate acquisitions. One challenge with modern onshore shale drilling and horizontal wells is they tend to have large production volumes at first, but then deplete more rapidly than conventional vertical wells.

“Steeper decline rates … in the Permian basin will likely result in operators needing to drill more wells than originally planned, if they’re committed to hitting previously established long-term targets,” said Robert Clarke, WoodMac’s Lower 48 research director. “This will be especially challenging in the near-term because raising capital budgets today is effectively off-limits.”

Permian oil production has skyrocketed to nearly 4.2 million barrels a day, accounting for more than one-third of the nation’s record-high output. As a state, Texas is at a record-high of about 5 million barrels a day of crude oil production.


Jordan Blum, Houston Chronicle

For more information, read: