Roll On (Eighteen Wheeler) - How Shifting Permian Crude Fundamentals Affect Trucking, Costs

Large-scale and well-funded producers in the Permian have built dedicated gathering systems and signed up for pipeline-takeaway options to keep their barrels moving to markets at the Gulf Coast and Cushing. For the most part, smaller producers don’t have the same options, for a variety of reasons. More and more, barrels from outside the core areas of the Permian are competing for the last bits of pipeline space and producers are being forced to rely more heavily on Permian trucking companies to help keep their crude flowing. Truckers are being asked to make less desirable, less economical and longer hauls, and are passing those costs back to the producer. With pipeline takeaway capacity maxed out, trucking capacity is being pushed to the limit too, with several potential upstream impacts. Today, we look at trucking options for smaller producers in second-tier production areas, the impact of boom-bust cycles on trucking companies and what tight trucking capacity means for the basin as a whole.

Like the proverbial dog who finally catches the truck he’s been chasing, only to wonder what to do next, midstreamers at long last have brought on enough crude oil pipeline capacity to move Permian barrels to the Gulf Coast. In fact, right now there appears to be more than enough pipeline space, with several pipes flowing less than their capacity. What midstream companies now face is a race to the bottom as their pipelines compete with each other to attract barrels by offering service to Gulf Coast markets at the lowest price — resulting in transportation rate compression. Today, we begin a blog series on the tug-of-war for barrels and its effect on prices.

The battle for pipeline supremacy in the Permian is really heating up. From Cactus II, to EPIC, to Gray Oak, to a bevy of upcoming expansions and a couple of longer-term behemoth greenfield projects, there are multiple new takeaway options for Permian producers. But could it all be coming online at the wrong time? If there’s one thing we’ve learned from third-quarter earnings calls and recent conversations with producers, it’s that balance-sheet management and fiscal conservativism are top of mind right now. As a result, drilling plans and production growth expectations have been tamped down considerably for 2020 and beyond. Midstreamers and pipeline companies in the Permian are responding quickly. Tariffs are being slashed, margins are getting cut, and competition for West Texas barrels is fierce. Today, we look at recent developments and what they’ll mean for revenues and market differentials heading into the New Year.