- Jan 12, 2019
- Midland Reporter Telegram
As crude prices work to recover from their fourth-quarter freefall, Permian Basin producers are also working to craft a year's worth of drilling and spending plans.
Discussing their outlook is an annual event for the Permian chapter of the American Association of Drilling Engineers, which hosts about eight operators for their Operator Forum each January.
"Overall, their message was pretty positive," said Scott Williams, outgoing chapter president. He said the consensus among the eight operators represented at the forum was break-even prices would be about $50 a barrel.
Their message was "favorable considering the roller coaster ride commodities has taken us on. A lot of people feel $50 is the new normal for the next year. With the volatile world we live in, who knows?"
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He said that last July, few could have predicted what happened, especially in the last quarter of 2018. And "six months from now, who's to say what we'll be talking about."
Based on current price levels of around $50 a barrel, Williams said activity was expected to be flat.
"No one's stepping back, and no one's really becoming aggressive," he said.
Andrew Hunter, drilling engineering advisor, Guidon Energy, agreed, saying his company plans to maintain its same level of activity as in 2018 – running three rigs in Martin County.
"We don't want to overreact to oil prices. You have to plan so far in advance," he said.
While Guidon is watching prices, he said, "Our biggest concern is talent. With the activity levels in the Permian, it's important to focus on planning, safe operations and an effective team."
Tommy Taylor, director, oil and gas development, Fasken Oil and Ranch, said Fasken's capital budget is expected to be the same as last year, "but we're watching oil prices to see if there's a recovery. If there's not much recovery, we will cut spending."
Taylor said he believes oil prices went too low. But what has been a drag on Fasken's finances has been the differential between crude sold in Midland and that sold at Cushing, a gap that widened to as much as $15 a barrel before narrowing to about $5 or so, a gap Taylor said is still too wide.
The company will be drilling its Manor Park project, comprised of eight horizontal wells that will develop minerals under land that had been gifted to Manor Park. Fasken also is operating two vertical rigs north of Midland.
He is looking forward to additional pipeline capacity coming online by the end of the year and hopes for completion of expansion of natural gas liquids capacity at Mont Belvieu, something he said has been holding up Fasken's natural gas liquids business.
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"Overall for the Permian Basin, production is way up, which is really good for Texas. The rise in production has been amazing. Maybe we can get to energy independence. Today, anything is possible."
But to achieve anticipated growth, Taylor said operators need oil prices above $50.
Also, "I'm concerned about infrastructure – roads, schools, housing, takeaway capacity. All of these need to be resolved in the next five to 10 years if we're going to achieve the production levels being talked about. By 2023, it's anticipated the Permian Basin will produce 6 million barrels a day. We're going to need a lot of workers and they're going to need homes, hospitals, child care, all those things."
James Wright, drilling operations advisor, Laredo Petroleum, said oil price uncertainty is the primary reason the company doesn't yet have a 2019 budget. He said the company intends to work within cash flow. For now, the company doesn't plan to change its activity levels, drilling 65 to 70 wells in the Midland Basin, primarily Glasscock and Reagan counties. All will be horizontal, with laterals between 10,000 and 13,500 feet. Wright said the company wants to see production results from some of its early wells before drilling additional wells. If oil prices remain in the $45 range, "We might have to change our strategy," he said.
Even though oil prices were at four-year highs as the fourth quarter of 2018 got underway, Wright said Laredo "decided not to increase its rig count because of the pipeline bottlenecks."
The company plans to become the most efficient operator in the region, Wright said.
"As the most efficient operator, we're interested in new technology, in testing new technology. In the Permian Basin, efficiency is king," he said.
Eric Pulpan's employer, Anadarko Petroleum, where he works as drilling manager, Delaware, plans to buck that trend by increasing activity levels in 2019. Pulpan said his company will be increasing its rig count from seven to 11 rigs in the Delaware Basin.
"We've told Wall Street we plan to grow production 10 to 13 percent year-over-year," he said. "The Delaware is a major asset for Anadarko, and we'll be a big part of achieving that overall growth."
While Anadarko is concerned about oil prices remaining low for a long period of time, Pulpan said the company sets its budget using $50 oil and "as long as it's not too far from that," Anadarko will maintain activity levels.
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