The expectation that crude oil production in the Permian Basin will continue growing has set off a competition among midstream companies, a number of which are known to be developing plans for additional pipeline takeaway capacity out of what is clearly America’s top-of-the-charts tight-oil play. One of the biggest topics of conversation the past few days has been the plan by EPIC Pipeline Co. to build a new crude pipeline from the Permian’s Delaware and Midland basins to planned storage/distribution and marine terminals in Corpus Christi. Today we detail EPIC’s plan and explain the rationale for the pipeline’s route and destination.
The Permian Basin in West Texas and southeastern New Mexico has proven to be the Energizer Bunny of U.S. tight-oil and shale plays, not only surviving the oil patch’s nuclear winter of mid-2014 to mid-2016 but thriving during it. Sure, the rig count in the Permian fell by more than two-thirds post-crash—from 558 in July 2014 to 162 in July 2016, according to Baker Hughes. But unlike other major plays (the Bakken and the Eagle Ford, for instance), crude oil production in the Permian kept rising—from just under 1.6 million barrels per day (MMb/d) in June 2014 (when crude was selling for $108/bbl, on average) to just over 1.9 MMb/d in January 2016 (when it was selling for $29/bbl). And like that pink, drum-beating bunny, the Permian remains full of energy: Production there is up another 300 Mb/d in the past 14 months (now averaging about 2.2 MMb/d), and as of March 3 (2017) the Permian’s rig count stood at 308. As for the Bakken and the Eagle Ford, their production volumes are down 11% and 27%, respectively, since June 2014, even with crude prices now north of $50/bbl.
The Permian’s production gains came as exploration and production companies (E&Ps) focused on their most prolific “sweet spots” and worked to further reduce their drilling and completion costs. The Permian’s 10,000-square-mile Delaware Basin sub-region, and particularly the northern Delaware, offers many of what seem to be the sweetest of these sweet spots. E&Ps have been perfecting their drilling and completion technologies and wringing remarkable volumes of crude from the area’s Bone Springs, Avalon, Leonard, and Wolfcamp formations. As a result, breakeven costs in the area have dropped from $60/bbl in 2013 to $30/bbl or even lower, ranking the area among the best for return on investment in the U.S. With breakeven numbers like that, it’s not surprising that Permian production is expected to remain on an upward trajectory under all of RBN’s forecast scenarios.
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