Oil Production: What the Imminent Peak in Permian Oil Mean for Investors

The Permian Basin’s oil production is projected to hit “Hubbert’s Peak” late next year, signaling a turning point where production will start to decline. The declining potential of the basin is attributed to much of the high-quality acreage already being drilled, resulting in an increased reliance on less productive “child” wells.
Devon Energy, a top-tier shale producer, is highlighted as benefiting from high-quality rock, substantial surface acreage, and successful inventory consolidation, despite the overall declining trend in the Permian Basin.
In the June 2023 edition of the EIA-914, the monthly forecast on oil and gas output, the Permian Basin was reported to have a slight decline in July/August, the first time since February 2021. This decline in available acreage for drilling in the Permian Basin has broad implications for oil supply and prices.
According to Goerhring & Rosenscwajg-G&R, a natural resources analyst firm, their production trend models suggest that “Hubbert’s Peak” for the Permian Basin will occur late next year. Hubbert’s Peak theory, named after geologist Hubert, states that once half of a basin’s reserves have been recovered, production will essentially peak. G&R estimates that approximately 20 billion barrels of commercially recoverable oil remain in the basin, which translates to about 11 years of output at current production rates.
The aging of Permian potential is evident as much of the best acreage has already been drilled. During the low-price era between 2017-2020, companies focused on developing their Tier I acreage, which offers the best drilling locations. As a result, the improved productivity seen between 2013-2018 was primarily driven by favoring higher quality areas.
While technology has extended the economics and productivity of new wells in shale reservoirs, there are limits to its ability to generate increasing amounts of oil and gas per foot of interval. The declining productivity per foot of interval indicates a decline in the output of wells in the Permian Basin.
In conclusion, the projected peak in Permian oil production has implications for investors, with a potential demarcation between winners and losers in the coming quarters. Devon Energy is highlighted as a top pick in the shale category. The declining potential of the Permian Basin, the aging of acreage, and the limitations of technology are factors to consider for investors in this sector.

Source: energyportal.eu

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