FORT WORTH, Texas—The Permian Basin holds the crown of being the largest and most important oil producing province in the Lower 48, said James Scarlett, vice president of RS Energy Group, speaking at Hart Energy’s recent DUG Permian conference. In 2016, some 2 million barrels per day (MMbbl/d)—more than 25% of the 8 MMbbl/d of Lower 48 oil production—came from the Permian Basin. 

“That volume is now up to 2.2 MMbbl/d, and we expect production to continue to grow. Nearly 40% of the 654 horizontal rigs turning to the right in the Lower 48 today are in the Permian Basin. And when we layer in factors such as increased drilling efficiencies, longer laterals, and higher-rate wells, we’re adding more oil production from the Permian Basin than we ever have in history,” Scarlett said.

M&A activity is also frenzied in the Permian Basin. In 2014, the Permian made up less than 40% of total M&A in the Lower 48; in 2016 the Permian accounted for $23 billion in transactions, more than 60% of the total.

“In 2017, we have already seen $20 billion in transactions in three months in the Permian Basin,” he said.

The reason for all these rigs and deals is the size of the prize. RS Energy analysis shows that at breakeven costs of $50/bbl and below, the Permian Basin holds 160 billion barrels of oil equivalent (Bboe), a stunning 80% of the total remaining resources in the Lower 48. “We have a basin running 40% of the horizontal rigs that’s at the low end of the cost curve with tons of supply.”

Of course, not every acre is of equal quality across the vast swaths of the Permian Basin. It’s a complex province with varying structural regimes, numerous reservoirs of varying lithologies, and variable liquids cuts within those reservoirs.  

The oft-discussed differences in ultimate recoveries across the Delaware and Midland basins are quite real, said Scarlett. In the Midland, a horizontal well can recover 100 Mboe to 125 Mboe per 1,000 ft, while in the Delaware it’s not uncommon for wells to recover between 200 Mboe to 300 Mboe per 1,000 ft. 

“We hear about operators chasing 900,000- to 1 million-barrel wells on both sides of the Permian. But keep in mind, they are doing it with a 7,500- to 9,000-ft lateral in the Midland, and a 5,000- to 6,000-ft lateral in the Delaware,” Scarlett said.  

The ability to stack potential reservoir zones is another reason that the Permian Basin is so popular.  The total hydrocarbon column exceeds 3,000 ft in the Delaware and Midland basins, as compared with 1,000 ft in Oklahoma’s Stack play and 300 ft in both North Dakota’s Bakken and Texas’ Eagle Ford plays. “None of the other basins can compete with the Permian’s vertical potential,” he said. 

While both basins are quite good, the Delaware’s resource potential eclipses that of the Midland Basin. That’s due to the Delaware’s higher EURs and higher number of prospective zones.  And although the Delaware is gassier, the oil recoveries remain robust; oil-only EURs exceed 70 Mbbl per 1,000 ft across the basin. 

Overall, the best area in the best basin is the State Line region of the Delaware. That’s where multiple intervals in the Avalon, Bone Spring and Wolfcamp plays straddle the New Mexico/Texasborder and combine to deliver extraordinary potential, noted Scarlett.  “That’s the sweet spot.”

Peggy Williams can be reached at pwilliams@hartenergy.com.