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One thing you learn very quickly when studying the nature and history of the oil and natural gas industry is that nothing related to it is permanent. Reservoirs deplete, technologies inexorably advance, means of financing projects come and go, and hot play areas go cold when the next one heats up.
While many in recent years have tried to characterize the production of oil and gas from shale formations, with its repeating processes and low frequency of dry holes, as essentially a "manufacturing" process, it really is not at all similar to the making of textiles, steel and plastics.
All of which is sort of a long way around to getting to a headline that ran in Monday's Arab News: "The Big Question for U.S. Shale: Is it Permanent or Just Permania?" Given that nothing in oil and gas is ever permanent, the obvious answer to the question is that the current situation related to U.S. oil and gas development is a great, big case of "Permania."
The real question, as borne out by the discussions at last week's CERAWeek conference in Houston, is just how justified the current case of rampant "Permania" happens to be, and more importantly, how long it will last. If you ask Tim Dove, CEO at the largest Permian Basin producer, Pioneer Natural Resources, it is very justified indeed. So justified, in fact, that Dove announced just a few weeks ago that his company would be divesting 100 percent of its non-Permian Basin assets soon, and betting its entire future on maximizing the potential from its more than 700,000 acres of leasehold in the massive Permian region.
"What we're staring at beneath our feet cannot be replicated anywhere else in the United States. That's a given," Dove told the IHS Markit-sponsored conference last week, "We have a golden goose right before us."
Sara Ortwein, President of XTO Energy, the shale-development subsidiary of ExxonMobil, agrees: "It's clear now that Permania - as some have called it - is really not a passing fad," she told the conference. As proof of ExxonMobil's commitment to West Texas/Southeast New Mexico region, she also discussed the company's plans to triple its production from all the various shale plays in the Permian by the year 2025.
When you have extremely successful companies like Pioneer and ExxonMobil agreeing on the basic premise that production from the Permian will continue to grow for years to come, it would be pretty bold talk to step in and argue to the contrary.
On that note, enter another highly-successful shale developer, former EOG Resources CEO Mark Papa. Papa, who is now the CEO of Centennial Resource Development, does not argue the basic premise that the Permian Basin is the premier shale resource play in the U.S., but he does question just how "permanent" the current Permania will ultimately prove to be.
"The impression of U.S. shale as the big bad wolf is perhaps a bit overstated," Papa told a CERAWeek audience, "My theory is that you've got basically resource exhaustion that is beginning to take place.
"It's no secret that you've only got three shale oil plays in the U.S. of any consequence," he continued, referring to the Permian Basin, the Eagle Ford Shale in South Texas, and the Bakken Shale in North Dakota and Montana, "The rest of them don't amount to a hill of beans." While drillers investing hundreds of millions of dollars drilling in places like the DJ Basin in Colorado and the SCOOP/STACK region of Central Oklahoma would no doubt contend otherwise, Papa's point is well-taken: Those three major shale plays do currently represent the preponderance of oil-related shale development potential in the lower-48 states today.
Papa's contention is that a high percentage of the prime drilling locations in those three major play areas have already been drilled, and that it will become increasingly difficult for companies to continue to increase or even maintain production levels in the next few years. Pioneer Resources and ExxonMobil obviously disagree with that premise, setting up the oil and gas industry's version of Clash of the Titans.
Amidst all of this debate comes a study from the Oklahoma-based consulting firm of Spears & Associates indicating that $2 of every $10 spent today on oilfield equipment and services worldwide is spent in the Permian Basin. That is a stunning finding, one that is not only indicative of the level of investment going on in West Texas right now, but also of a similar shortage of investment dedicated to finding new oil reserves in other parts of the world.
All of which leads to the bottom line on the "Permania" debate that took place at CERAWeek: The world had better hope that Pioneer and ExxonMobil ultimately prove to be more correct in their assessments than Papa, because if Papa is correct in his belief that the Permian's ultimate potential is overstated, the world could be facing a significant crude oil supply shortage - and resultant major oil price increase - in the next few years.
