Opinion

Permian Giant Oil Field Would Lose $500 Billion At Today’s Prices


Did you hear about the largest U.S. oil and gas field that's in the Permian basin of west Texas?

That's the one that's not a field because it hasn't been discovered yet. That's the one whose 20 billion barrels are an estimate by the U.S. Geological Survey. That's the one whose 20 billion barrels would lose $500 billion at today's oil prices.

Wait a minute. What about the headlines?

Bloomberg: A $900 Billion Oil Treasure Lies Beneath West Texas Desert

USA Today: USGS: Largest oil deposit ever found in U.S. discovered in Texas

Deutsche Welle: Largest US oil and gas discovery made – USGS

Read the source–the U.S. Geological Survey.  The USGS did an assessment of the undiscovered, technically recoverable resources of the Wolfcamp shale in the Permian basin.

“Undiscovered” means what it says–it has not been discovered. It's an estimate, an educated guess. “Technically recoverable resources” means the oil that could be produced if cost didn't matter.

Where Did $900 Billion Come From?

Where did the $900 billion value come from? Multiply 20 billion barrels times $45 per barrel and you get $900 billion. In other words, if the oil magically leaped out of the ground without the cost of drilling and completing wells; if there were no operating costs to produce it; if there were no taxes and no royalties.

Sweet. Jeb Clampett shootin' at some food.

In the real world, an average Wolfcamp well costs $7 million to drill and complete (Table 1 from my June 2016 post on the Permian basin plays). Average operating costs are about $12 per barrel. Severance taxes are almost 5% and the average net revenue per barrel after royalties is only 75%.

Table 1. Permian basin economic assumptions by play. Source: Company documents, SEC Filings and Labyrinth Consulting Services, Inc.

The Cost

The obvious question that reporters apparently failed to ask is, What is all of this going to cost?

The USGS document “Fact Sheet 2016–3092” that summarizes the Wolfcamp study includes a table that allowed me to calculate the number of wells required to produce the estimated 20 billion barrels of oil.

For each subdivision of the Wolfcamp play or “AU” (Assessment Unit), the USGS provided a calculated mean number of potentially productive acres and the average drainage area of wells. By dividing the two, I was able to determine the number of wells (shown in yellow) for each Assessment Unit in Table 2.

Table 2. Key assessment input data for six continuous assessment units in the Wolfcamp shale in the Midland Basin of the Permian Basin Province, Texas. Source: USGS and Labyrinth Consulting Services, Inc.

According to the USGS' input data, it would take 196,253 wells to produce the 20 billion barrels if it exists. At $7 million per well, that would cost almost $1.4 trillion in drilling and completion costs alone.

It would cost more than $1.4 trillion to generate $900 billion in revenue resulting in a net loss of $500 billion at $45 oil prices excluding all operating expenses, taxes and royalties–and no discounting.

That's a discovery that no one can afford to make.



New service from OilVoice
Trip Shepherd is for companies who need to track their staff in areas of risk.
It's free to use, so we invite you to try it.

Visit source site

artberman.com/permian-giant-oil-field-would-lose-5...

PermianArt BermanUnited StatesDiscoveryThe Petroleum Truth Report

More items from artberman


Don't Miss Out on Interacting With Art Berman Live!

This will be a deep dive into where prices are going! You will have an opportunity to engage with Art in a live conversation in a group setting.  See you there! https://www.artberman.com/2020/05/23/webinar-thursday-may-28th-at-130-pm-central-time/

Art Berman - The Petroleum Truth Report


    US 28 May 2020


Posted 3 months agoEvent

Alternative Facts About OPEC & U.S. Shale From The Wall Street Journal

Posted in The Petroleum Truth Report on December 19, 2018 The Wall Street Journal's recent editorial “ How America Broke OPEC ” shows that even high-quality journalism is susceptible to the contagion of alternative facts. It is a propaganda piece about how the underdog U.S. oil industry miracul ...

Art Berman - The Petroleum Truth Report


Posted 1 year agoOpinion > OPECUnited StatesUSA +3

Oil Markets Recover From Panic Attack but Prices Will Go Lower

Crude markets had a panic attack in August and September that sent prices soaring. Sanity is now returning. Prices have fallen but are likely to move even lower over the next few months. The panic attack was caused largely by Trump's August 7 announcement that sanctions would be re-imposed on Iran ...

Art Berman - The Petroleum Truth Report


Posted 1 year agoOpinion > Oiloil priceCrude +5

Natural Gas Risky Business: What, Me Worry?

Natural gas storage is at record low levels but prices are falling going into winter heating season. Markets seem to be betting that wellhead supply will be sufficient to cover demand this winter. That may be but at what gas prices? This is a game of natural gas risky business. Natural gas 6- ...

Art Berman - The Petroleum Truth Report


Posted 1 year agoOpinion > natural gasStorageArt Berman +3

Art Berman: Don't Believe The Hype - Oil Prices Aren't Going Back To $100

The breakout in Brent crude prices above $80 this week has prompted analysts at the sell side banks to start talking about a return to $100 a barrel oil . Even President Trump has gotten involved, demanding that OPEC ramp up production to send oil prices lower before they start to weigh on US co ...

Art Berman - The Petroleum Truth Report


Posted 1 year agoOpinion > Art BermanOil PrucePresident Trump +4
All posts from artberman