February 2012

The University of Tulsa – Master of Energy Business Program

February 29, 2012

Please take a moment to learn about the University of Tulsa’s Master of Energy Business program. The program is an online course, competitively priced, and directly geared directly towards professionals working in the energy sector in the Permian Basin. To learn more, visit www.utulsa.edu/meb.

Texas oil production is making a comeback

February 27, 2012


JIM LANDERS The Dallas Morning News

MIDLAND — “Texas tea” is back.

Some of the leading oilmen in the Permian Basin say they expect to double oil production in Texas within five to seven years.

Dry holes are a thing of the past. Practically every well drilled in the basin produces oil.

“I’ve been totally surprised by the amount of oil we’re finding out in the shale zones. … The resurgence has been amazing,” said Scott Sheffield, chairman, president and CEO of Irving-based Pioneer Natural Resources Co.

This West Texas region has long been the most oil-prolific part of the state. In the last eight years, however, oilmen like Sheffield and Midland’s Jim Henry of Henry Resources LLC have found that dense, oily rock would yield to hydraulic fracturing — pumping large volumes of highly pressurized water down the wells.

First they arrested the decline in Permian Basin production. Then they started increasing total oil production in Texas, which climbed back above 1 million barrels a day last year for the first time since 2001.

Now they have loftier goals.

“Right in the basin, we could get up to 2 million barrels a day,” Henry said.

Tim Leach, chairman, president and CEO of Midland-based Concho Resources Inc., described the Permian Basin as one of the world’s hottest oil plays.

“We have 30 billion barrels of new oil discoveries,” he said. “It can be hard to get your mind around that.”

The latest Texas oil bonanza brings concerns about the industry’s huge appetite for water in a time of severe drought. Drillers, meanwhile, worry that the federal government will trip them up by raising their taxes and limiting land use by declaring local critters such as the dunes sagebrush lizard an endangered species.

For now, having unlocked the secret of “tight oil,” Sheffield, Henry, Leach and others are drilling as much as they can. With wells costing $1.7 million on average, companies are spending more than $1 billion a month on drilling, said Ben Shepperd, president of the Permian Basin Petroleum Association.

The rush to drill also has a lot to do with the price of oil, which is near $100 a barrel. Last year, Leach said, Concho realized profits of $50 a barrel. As long as prices stay above $70 a barrel, hydraulic fracturing and horizontal drilling will remain profitable pathways into the Permian’s dense rocks.

Signs of new boom

Downtown Midland hasn’t changed much since the mid-1980s, when several skyscrapers were built to celebrate earlier oil boom days. The Petroleum Museum on the south end of town has its own frozen-in-amber ambiance. There are displays recalling how drillers dropped silver torpedoes of nitroglycerin down wells to break up the hard rock of the basin. An old film debunks urban rail projects as overly expensive alternatives to commuting by car.

You can see the latest boom from the air. The ancient marine reefs and cliffs that form the basin are thousands of feet beneath the flat West Texas plains. But thousands of new drilling pads sit amid the mesquite brush and the red-clay cotton fields. North of downtown, new housing developments and shopping malls line the Interstate 20 loop road. Long Union Pacific freight trains loaded with oil pipe roll slowly into town from the east.

In this frenzy, the Midland-Odessa economy grew 13.5 percent last year, said Amarillo economist Karr Ingham. Employers are recruiting nationwide to fill jobs in the region. Oil service companies try to lure roughnecks away from rivals with ads on country radio stations.

Retail sales are booming. Houses, apartments, hotel rooms and rental cars are scarce.

Oil taxes and royalties, which the industry claims account for 25 percent of the state government’s revenue, are pouring into Austin.

Similar oil booms are under way in the Eagle Ford shale area near San Antonio and in the Bakken shale zone in North Dakota and Montana. Oil production is also climbing rapidly from the tarry sands of western Alberta, Canada, which is now the largest source of U.S. oil imports.

“I could paint a scenario for you where we are producing 3 million more barrels per day by 2016, which would almost get us to the point where we could eliminate 60 to 70 percent of our OPEC imports,” said Texas Railroad Commissioner Barry Smitherman. “With that greater control over our own energy security , we could care less about what happens in the Strait of Hormuz” — the narrow mouth of the Persian Gulf that serves as a seaway for 22 percent of the world’s oil supply.

For now, global tensions over Iran’s nuclear program reverberate quickly through the Permian Basin. Prices for West Texas Intermediate, the signature crude oil of the basin, are climbing as countries vow to boycott Iranian oil, and Iran threatens to close the Strait of Hormuz.

America still imports 45 percent of the 19 million barrels a day we consume, but that’s down sharply. Imports accounted for nearly two-thirds of all liquid fuels consumed in the United States in 2005. Last year alone, imports fell 4 percent, according to the U.S. Energy Information Administration.

“The United States is very fortunate to have two new sources of oil in the Permian Basin and the Bakken,” said Concho’s Leach. “For 30 years, our entire foreign policy has been based on trying to keep the flow of oil going around the world. Now we have the opportunity to be energy-independent if we choose to be that way.”

Forces of nature Water is the key to keep all of this moving. Hydraulic fracturing requires millions of gallons of water, and West Texas is a dry country.

Ken Kramer, director of the Lone Star Chapter of the Sierra Club, points out that “none of us truly have a complete handle on the issue of water use in the hydraulic fracturing process.”

Shepperd, the president of the Permian Basin Petroleum Association, agrees.

“We use a lot. We need to do a better job,” Shepperd said.

The petroleum association is surveying its membership to measure water usage. The University of Texas’ Bureau of Economic Geology is working on the issue. A preliminary look at hydraulic fracturing by the bureau found that the process was using 1 percent of the state’s water consumption. In a drilling boom, however, backward-looking measurements don’t reflect rising demand.

The oilmen worry about the dunes sagebrush lizard because its being listed as an endangered species would stall drilling by as much as two years, Shepperd said. New permits would be needed. Habitat conservation plans would have to be implemented.

It’s not the first fight over whether local animals are endangered. Leach and other oilmen see in this a campaign by some environmentalists to shut down the petroleum industry because of climate change, air pollution, spills and other ills laid at the industry’s feet.

The Sierra Club’s Kramer said the industry is making a “tempest in a teapot” out of the issue and should concentrate on conservation plans.

“There are ways of working this out,” he said.