Seeking Alpha

$5T Permian Basin boom threatened by falling crude prices

  • The Permian Basin is all the rage on Wall Street, but oil prices need to stay high enough to support the current rate of exploratory drilling - and prices for West Texas crude have dropped below $100/bbl for a third straight weekly decline.
  • The Permian remains the largest U.S. oil producer, with output averaging ~1.3M bbl/day and rising, but it's also the most expensive U.S. shale formation in which to drill - meaning the boom could become a bust if crude moves near $70/bbl, as some analysts predict.
  • If oil drops to $80, wells in some parts of the Permian will become money-losers; wells drilled in the Cline Shale and Northern Mississippian Lime layers of the Permian need $96 oil to break even.
  • Among top Permian producers: PXD, FANG, CXO, APA, ATHL, OXY, XOM, EOG, XEC, APC, CVX, COP, CWEI.
  • Oil ETFs: OIL, USO, DBO, OLO, USL, CRUD, UCO, DTO, SCO, SZO, DNO, UWTI, DWTI.
Comments (60)
  • Lower oil prices mean less drilling; higher oil prices mean more drilling. But it's a gradual change in both directions - a schedule of available drilling opportunities that vary by oil price.

     

    Overall the Bloomberg article is stupid and naïve, bordering on childishness. Maybe it will panic some into selling E&P stocks, driving down stock prices, and making opportunities for those who don't take oil advice from creatures in NYC. I'm 60% cash; make my day.

     

    I think oil stocks (and the whole market) are too high for my blood; I'll wait until the NYC crowd panics and runs.
    26 Oct 2013, 05:40 AM Reply Like
  • This whole Shale revolution looks like a bust now. Almost every dry well producers are loosing money. But again it was Obama proud of.
    26 Oct 2013, 02:28 PM Reply Like
  • Bull***t article, "like OMG iz teh oil BUBBLEZ going to pop??!!"
    26 Oct 2013, 10:52 PM Reply Like
  • My take is that oil won't be going out of fashion for quite a few decades to come. I'll put my money on the drillers and refiners.
    28 Oct 2013, 02:28 AM Reply Like
  • I feel that oil will be in fashion for the balance of this century.

     

    -rwm
    28 Oct 2013, 11:24 AM Reply Like
  • Didn't realize the cost of producing a barrel of oil has tripled in 8-10 years. Not sure I believe it either.
    26 Oct 2013, 10:40 AM Reply Like
  • Did someone turn open the tap a lot more?

     

    Does Saudi Arabia still have the ability to whipsaw oil prices because the cost of production from its fields are so much lower?

     

    In past decades this was the external regulator of American Oil Production.
    26 Oct 2013, 11:08 AM Reply Like
  • If you think that we're going to see $70 oil, I've got a bridge I want to sell you in Brooklyn.
    26 Oct 2013, 11:12 AM Reply Like
  • The press sucks.
    EVERYTIME there is a positive movement in something they try to rein it in with terms like "bubble", "money losers", etc. Anything for controversy and a headline. It's STALE ,BORING and TRITE !

     

    The world is growing as is its exponential requirement for energy.This will not ebb.

     

    Next, it will be a front page on the king of BS'ers---barrons

     

    The oil companies know what they're doing and have been compensating and "doing" for years in a field THEY control.
    Not the BS press!
    26 Oct 2013, 11:28 AM Reply Like
  • The WTI spot back on April 15th was $88.75. Things sure have changed in only 7 months, eh Bloomberg?
    26 Oct 2013, 11:37 AM Reply Like
  • Tesla raise it's production by 22 cars this month. That's what one of my spies told me. I really didn't think the oil boys would be affected. It's hard to make a buck in this market, I guess that's why I'm still a raging bull. Fang's current break even, is estimated around $55 BPB. That's bucks per barrel. That said, most people are terrified of snakes. RU
    26 Oct 2013, 11:58 AM Reply Like
  • PXD CEO says they can still make money at $50-$60 oil.
    26 Oct 2013, 12:20 PM Reply Like
  • The sky is falling! Run Forest Run! Most operators on this list have BE points under $60 and are getting >100% ROI. With thousands of drilling locations they will be making money hands over fists for years to come. After 90 years and 30 billion barrels produced the Permian Basin is just getting started. NYC? "Get a rope"!
    26 Oct 2013, 12:31 PM Reply Like
  • We should expect the price of oil to drop to break even just as the price of gas has fallen to break even. Most of the new drilling has switched from gas rich to oil rich areas. It doesn't take a genius to figure that the price of oil will keep falling.
    26 Oct 2013, 01:04 PM Reply Like
  • Price of oil dropped into the 30,s in 08/09 from the 120,s. having worked for 20 plus years in the oil patch I have seen the price of oil drop 50% practically overnight which results in drilling contract cancellations, the patch has seen a drop of the rig utilization from 1800+ rigs down to 400 rigs in a two week period. Always because of the supply/price ratio. May/may not happen once more. The economy of today is more dependent for job growth on the oil patch than any other time in my lifetime. Would not like to see the possible devastation that could occur.
    26 Oct 2013, 01:39 PM Reply Like
  • stu, how much oil is left on the planet and how many more years of pumping oil is possible?
    26 Oct 2013, 02:57 PM Reply Like
  • @macheavelli,

     

    I will say we will "never ever" run out of oil. I read the book.....

     

    The earth will be destroyed before oil disappears.
    26 Oct 2013, 08:12 PM Reply Like
  • It's "machiavelli"... Who will destroy the Earth? Mankind? LOL! I prefer to hope that all the positive advancements in humanity we already have achieved are stepping stones for the righteous path... which is the path of race species survival. Go ahead and be a nihilist if you want but it is a sucky way to live in my opinion. I'm as cynical as the next guy but I don't see why you would want to live without hope for a better future even if it was not in your lifetime... unless you are a sociopath, comfortable in your current environment without a care for others.
    27 Oct 2013, 01:33 AM Reply Like
  • The Earth has been making oil and gas for many centuries and continues to do so now. There was no magic day that the Earth stopped making oil and gas. Actually since over 70% of the Earth is underwater (oceans, rivers, lakes, glaciers,etc) and these areas are mostly unexplored so the Earth is probably making more oil and gas than humans are consuming, therefore we cannot see any end to oil and gas production. Just look at the Permian still going strong after 90+ years and yet to reach its peak production and maybe it never will as humans develop more and more technology to find and harvest oil and gas..

     

    We will probably become extinct by another planet catastrophe such as being struck by an Asteroid or the gas seeps under the
    Gulf of Mexico will get so big they will cause an upheaval in the ocean causing mammoth tidal waves and wide spread fires as methane mixes with the air's oxygen then comes a worldwide freeze as the resulting soot up at high altitudes blocks the rays of the Sun before the Earth stops making oil.
    27 Oct 2013, 02:21 AM Reply Like
  • It seems ludicrous to me to think that the earth will keep producing oil (since it takes millions of years of high pressure and temperature on massive quantities of dead organisms only populace enough during a few points in the history of the planet) to keep up with our consumption, but maybe that was not your point.

     

    We won't become extinct from a asteroid because the circle of science and technology plus the will of intelligent visionaries will allow us to explore the universe. Nihilism is so boring.
    27 Oct 2013, 03:21 AM Reply Like
  • and if that astriod hits tomorrow? enjoy each day, for tomorrow is not a given
    27 Oct 2013, 09:44 AM Reply Like
  • @machiavelli, "Who will destroy earth?"

     

    God! That's if you believe in Him. If don't, then it's still God.

     

    There's plenty of oil and always will be. It's funny to me, man can't predict the daily weather (remember all those hurricanes we were supposed to have this year) yet here we are discussing oil depletion.

     

    Men have never gotten this right.
    27 Oct 2013, 10:36 AM Reply Like
  • Cliff is absolutely right. Oil will always exist in the earth's crust short of planetary destruction. The only question is how hard will it be to extract. I think eventually it could get to the point that "the juice isn't worth the squeeze" but in my opinion that is a long way off. I highly doubt that we have even scratched the surface on the amount of oil that exists in the crust. Just look at the green river formation, supposed to be 1-2 trillion barrels, although the energy to extract it is way too high. Also if you look at the "oil in place" figures from USGS for the Bakken shale it shows something like 150-170 billion barrels, with only about 10-20 billion recoverable. And they are finding these shale formations all over the world. That alone tells me there is still plenty left. Still if a true alternative is not found, eventually we may reach the point where the expense of oil exploration makes it no longer viable as a primary energy source.
    27 Oct 2013, 10:52 AM Reply Like
  • Actually as much as you think carbon fuels exist, we have already extracted all the easy oil... even the saudis have to pump oceans of water into their wells now to keep the flow... shale oil may exist in vast quantities but the vast amount of it is not suitable or too expensive/environmentally costly to get at. After reading some of your comments I see I have gained the attention of a rightwing religious extremist heavily invested in blackberry but who also brags about a massive oil/chemical career yet very little info on that topic... likely you painted wellheads and pigged pipelines for most of it I am guessing... good to see you have moved into serving coffee and sandwiches... I always find it fascinating how sociopaths become successful entrepreneurs.
    27 Oct 2013, 02:03 PM Reply Like
  • Humanity guzzles about 30 billion barrels of oil per year and rising... with the reported recoverable reserves of about 1500bb and our annual consumption rate this means we have about 50 years left of easy/inexpensive oil... even if through shale recovery and ocean drilling is expanded, doubling the reserves, that is still only 100 more years of oil and the cost for retrieving it will impeded that progress until the inevitable rising price of oil makes that feasible.
    27 Oct 2013, 02:18 PM Reply Like
  • @machiavelli, all entrepreneurs are psychopaths and some do display sociopath tendency. And the next time you characterize me, include terrorist (you won't be the first though)...:).

     

    I have painted a house before but never a well-head. I have sold coatings to those contractors that do. I helped build 17 drilling rigs (semi-subs and jack-up) and spent very little time off shore working on them.

     

    I disagree with you about the abundance of oil (or lack of). I don't think carbon is a problem (pull it out of the atmosphere and we all die). And we cannot affect our weather as some propose (talk about extreme).

     

    I get involved in this type of discussion because I don't want a policy that supports this kind of thinking. I pay a good bit of taxes, let's use those funds to create more jobs not more government agencies.
    28 Oct 2013, 09:19 AM Reply Like
  • "And we cannot affect our weather as some propose (talk about extreme)."

     

    I think you meant "climate" not weather but soon the above statement will be the equivalent of saying the earth is round. the LA Times actually bans anyone from presenting arguments against global warming because the SCIENCE has proven that climate change is happening. But Jesus goggles blur the mind as well as your vision so you won't agree.
    29 Oct 2013, 06:56 PM Reply Like
  • Perhaps the LA times needs to investigate the history of climate on earth prior to taking that position? The earth has had periods of heat, and cold, over it's entire existence in ways that science is only beginning to explain. Whatever damage man does to the planet will come back and destroy man, but the earth will survive. Sometime in the next 10,000-100,000 years (based on history), Manhattan will be ground into the Atlantic by ice, and New Jersey will be under several hundred feet of the stuff....so, what is your point?
    29 Oct 2013, 10:42 PM Reply Like
  • No, son. Facts are facts and you can't dispute them. What was your point?
    30 Oct 2013, 12:52 AM Reply Like
  • Dad,
    You should have spent more time with your kids...
    1 Nov 2013, 05:33 AM Reply Like
  • Most oil producers within the US don't know how to manage capital. They have no one but themselves to blame for lack of profitability. There are reports saying that oil companies are paying six figure salaries to many entry level technicians with 1 to 2 years of job experience even though their job isn't that complex. At a time when unemployment is so high, oil companies are not marketing their available jobs well enough to decrease their employee costs.

     

    If you are going to pay someone $110,000 to push a button and pull a lever, you are not going to make a profit, period.
    26 Oct 2013, 05:36 PM Reply Like
  • Jacob, I don't know what reports you read, but oil field guys work harder than almost any other industry on the planet. We do our job right and we don't sleep till it's done. We get paid well because the work is tough and mistakes are costly. You office types think you are the bees knees but if you got thrown into the field you would be clueless. Which lever do you pull? When do you pull it? How hard? It takes knowledge, experience and sometimes instinct to know, so please restrict your comments to things that you actually understand.

     

    And FYI, oil companies pay good because if they didn't we would go find easier jobs and there would be no one to do the work.
    26 Oct 2013, 09:29 PM Reply Like
  • One of these oilfield workers does more work in a day than your average UAW worker does in a week, in much more difficult working conditions. Complain about the UAW workers, or for the matter members of public unions working for the government who do even less work, amazingly, than UAW workers. By the time benefits, retirement costs, liberal time off, etc. are factored in, it all makes an oilfield worker look like a bargain. And some of the jobs are becoming increasingly technical, and highly skilled.
    27 Oct 2013, 08:43 AM Reply Like
  • oh dude, please... you don't need to be a genius to be an oil field operator... come on. Working hard? Physically, at times, yes, but the problem solving is simple to anyone with a bit of mechanical savvy, making sure a valve is open or closed. I wish people would get over themselves.
    27 Oct 2013, 02:34 PM Reply Like
  • The spoiled and lazy population complaining that they are not paid double what they are worth as fast food workers wouldn't last a whole day out there. Oh dude, please? I would say considering your comment that you have never had a job that was physically exhausting in very difficult working conditions.
    27 Oct 2013, 02:52 PM Reply Like
  • I worked in the Saskatchewan oil fields... the work was not hard but the weather was brutal in the winter... the toughest part. The guys running drilling rigs worked hard for several days but then they had time off with loads of OT money... they were a bunch of regular dudes no different from anyone else and they did not drill in the winter so they didn't have to work in brutal weather. Fracjob, you are full of it.
    27 Oct 2013, 02:56 PM Reply Like
  • Conventional fields are very different from shale fields drilling in "manufacture" mode from pads. But you already knew that.
    27 Oct 2013, 04:25 PM Reply Like
  • Hmmm, well most of the drilling business is 24/7 every day of the year. In North Dakota we worked through any weather except very high winds (due to the high wind load rating of the derrick) but that was few and far between. Personally I am more of a supervisor so I don't have to do nearly as much physical work as the hands. Those guys work their asses off, and I have all the respect in the world for them. When you work 12 hours a day for three weeks straight, you deserve some time off.
    27 Oct 2013, 04:55 PM Reply Like
  • If you work 12 hour days for 3 weeks straight in the field I would say that is quite a lousy life IMHO. I worked 8hr days for 10 straight then got a 4 day weekend working for Esso in Sask.
    27 Oct 2013, 08:30 PM Reply Like
  • Well it depends on your schedule. I used to do 28 days on 14 days off. During days on we were on call all the time. There were some hitches I would get about 12 hours of sleep in a week. Most guys do 14/14 or 21/21 and its usually 12 hour shifts for rig hands so the only life you get is days off. Like I said, there are reasons the money is good.
    28 Oct 2013, 01:25 AM Reply Like
  • Yeah working 10 hours a day but getting paid as if working 24-hours a day (often tax free with free housing and meals) must be pretty tough. Tell that to Wal-Mart employee who gets paid 1/10th of what an entry level oil field employee gets.

     

    I love how every person on earth thinks their job is the toughest in the world and that they deserve every penny they earn (and some more).
    28 Oct 2013, 04:23 AM Reply Like
  • Spoken with absolutely no experience. Come out to the rig and we'll show you what hard work is all about. Yes sometimes you can get paid a full day for standby time or whatever, but the days where you actually have to work 24 hours plus with no sleep more than make up for that. I worked at a grocery store in high school, and it was the easiest job I have ever had, no way in hell it should pay even close to the oil field.
    Also I don't know where you're getting tax free from. I guess I haven't figured that one out yet.
    28 Oct 2013, 09:14 AM Reply Like
  • Then how do you explain lack of profitability in almost every oil company that extracts oil in the mainland of the US? Employers are as valuable as they produce value to a company. You said that if they didn't pay that high, they couldn't attract that many people to work there. In that account, if oil companies can't post profits, those jobs won't exist and those people will have to go back to having jobs that pay a quarter of what they make now. Companies are out there to make profits.

     

    As for tax free, a lot of oil workers that stay in oil fields get "per diem" payments which typically don't get taxed.
    28 Oct 2013, 11:58 AM Reply Like
  • First of all, per diem is next to nothing, and it is intended to compensate for expenses. If you are careful you can pocket some extra, but not much.
    Secondly.......what?!?... I'll admit I am not an expert on the subject, but it seems that independent domestic producers are doing pretty well. e.g. WLL, CLR, EOG, KOG, plenty of others. Also my employer has been doing pretty well lately.
    Now don't get me wrong I wouldn't expect to be paid a premium if oil prices dropped and the profits dried up. In fact, I would probably be laid off or quit due to lack of bonus pay (an important point, we only get paid well when we are working!) and I wouldn't blame the company for that. They have to react to the market or go broke. But that is the nature of a cyclical business. Prices drop, good hands get laid off, projects are cancelled and production suffers, which fuels the next boom.
    28 Oct 2013, 12:21 PM Reply Like
  • Bashing the unions again? What is it that they have that you want? If you are doing so well in the oil fields, what point is there in denigrating someone else? And, what makes you think you are right? We all work where we can work, for whatever reason. You may have some position with government workers (fed/state/local) since I assume you pay taxes, but what is it to you what GM, Ford, Chrysler pay their union workers? It bothers me naught that oil workers make $100K +...it's hard ass work out in the middle of nowhere - and, they get paid for the hours they are on the job....so, why complain about union workers, who signed a legitimate contract with another corporation, and get paid for the hours they are on the job?
    29 Oct 2013, 10:50 PM Reply Like
  • A lot of young people have been so indoctrinated by the time they graduate High School or College by the lefties, that they think the oil patch is full of sinners and is an "undesireable" job for people who have NO social conscience or are not P.C.

     

    LOE for a lot of these operators in the Perm is pretty low, under $10. Operating margins are some of the highest I have seen at $50-60.

     

    The oil sands in Canada and a whole lot of secondary and tertiary will stop producing long before the Perm.

     

    I have IRR's in the Perm at 50% average at $90 oil. They might slow/stop drilling below $70-80. Depends on the details well by well, look at your last one in the hood. Look at your offsets.
    26 Oct 2013, 06:14 PM Reply Like
  • "A lot of young people have been so indoctrinated by the time they graduate High School or College by the lefties, that they think the oil patch is full of sinners and is an "undesireable" job for people who have NO social conscience or are not P.C. " Why do you make a comment like this - insulting - when the rest of your comment is factual and to the point? Why ruin your position by making an insult?
    29 Oct 2013, 10:47 PM Reply Like
  • Could this mean the PXD bubble is about to burst? The hype is that PXD is sitting on huge reserves but if their production costs are high and oil drops why would you want to own PXD?
    26 Oct 2013, 07:36 PM Reply Like
  • i think what is critical is the infrastructure to turn the oil into something useful. both the refining and grid capacity of Texas is truly massive...as well as the ability to move refined product globally either through the Houston ship channel http://bit.ly/HmGAAK or through New Orleans http://bit.ly/HmGBVb so sure...oil prices could fall and fall dramatically (say down to 60 bucks a barrel..or even further) but that could end up making margins on the refined product for export truly huge. and that's just for Texas. North Dakota, Upper mid west ethanol, Canada, Tesla's, solar cities, wind power, Wyoming, northeastern natural gas, Ohio river coal...i think not just the cost but the price of energy is truly heading south in a big kind of way in North America.
    27 Oct 2013, 12:03 AM Reply Like
  • I do not buy at all that "their production costs are high".

     

    Bubble. I don't buy that either. They ARE sitting on a large low cost resource. Lower production cost than the Oil Sands. For a lot of their Sprawberyy Wolfberry V program......those drilling costs per BOE are pretty competitive. They have been drilling those for years.

     

    The numbers from the Midland Basin seem to indicate that H Wolfcamps, drilling part of the same formations as a V Wolfberry (hence the name Wolf) are actually BETTER IRR's and Quicker Paybacks than the older Verticle Wolfberry programs. Hence the big shift to drill H in the Wolfcamp.

     

    IMO the valuation of PXD is a bit streached, at a historical high per BOE production, EV/EBITDA especially compared to its peers. LPI is a little cheaper and looks to be doing just as good if not better in the Midland. I own OXY and APA for a much cheaper but more diversified play on the Perm. The other stuff you get along with a very large PERM position here is a lot of it not as good as the PERM. Hence the ability to restructure around the PERM. See all the recent news and blog posts on Seeking A for developments at APA and OXY. IMO in a few years they will look a lot more like PXD but your getting in today at much lower levels.
    27 Oct 2013, 08:36 AM Reply Like
  • I would not say the "price" of energy is truly heading south. Because of money printing, it may not be headed south.

     

    I would say the cost and the price of energy is truly headed south "relative" to the Rest of World. This is part of the Obama recovery........Lefties get a free ride on this "recovery" from the oil and gas H drilling and Fraccing of unconventional resources in U.S.

     

    Big boom for Nitrogen Fertilizer producers in U.S. Steel. All Farm output. Lots of other manufacturing industry that are dependent on high energy input for a large part of their costs.
    27 Oct 2013, 08:26 AM Reply Like
  • So I guess the righties get a free ride out of the tech boom in Silicon Valley, Austin, Oregon, WA, Boston, etc. which provides many more jobs than the oil sector, & hugely more when drilling slows.

     

    Righties, lefties, cut the bs. Can we not even have an article w/o the freaking political viewpoints. NO ONE CARES ABOUT WHAT YOUR POLITICS ARE!
    27 Oct 2013, 04:39 PM Reply Like
  • I was broker in Dallas 50 years ago, when oil went from $2.00 to 3.00/barrel - good inflation hedge. Just got back from Midland visit, and there is hugh boom now. 15 years ago, all rigs were idle there. Oil is boom/bust business, always has been - but big winner over long haul. Cheap oil is gone, except for Mid. East. I am long oil, but have cash reserve - NO ONE knows the future. JG
    27 Oct 2013, 09:37 AM Reply Like
  • sell your apa so i can buy it back cheep!
    27 Oct 2013, 10:45 AM Reply Like
  • Seattle is top Twitter trendsetter in the U.S.
    27 Oct 2013, 10:46 AM Reply Like
  • PXD will start to lose money ONLY IF oil gets down to $50. And, I highly doubt that we will see $50 oil ever again. PXD is the #1 player in the Basin.
    27 Oct 2013, 01:44 PM Reply Like
  • We won't run out of oil. When it becomes more expensive than alternatives we'll use what comes next. We are probably one world wide demand surge away, but to what I don't really know. Pure electric vehicles would have to run on coal and/or nuclear, and that's if you could solve the range problem, so we're down to a mix of super hybrids (diesel/electric) and gas power.

     

    Fusion power has just about reached the point in the lab where energy out exceeds energy in, an important milestone but a long way from commercial application.
    27 Oct 2013, 02:28 PM Reply Like
  • Now it's clearer why Saudi Arabia started pumping out records amounts of crude recently. They're showing the US who's boss in the worldwide oil market.
    27 Oct 2013, 10:57 PM Reply Like
  • I'm not too sure about that being the cause at all, this price dip has been overdue for a while and there is a disconnect between Brent and WTI. But, nevertheless, in general I hate being torqued by foreign countries. I sure wish we had more infrastructure to import Canadian oil and gas-- not just the heavy stuff either. It would help them and help us too.
    27 Oct 2013, 11:11 PM Reply Like
  • "threatened by falling crude prices" may present a buying opportunity (long) for investors and lower gas prices may lift consumer spending q4, happy holidays?
    28 Oct 2013, 02:28 AM Reply Like
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