Stacked up against other producers, the Permian stands out. Unlike OPEC countries such as Kuwait and Iraq, drillers in the Permian aren’t beholden to alliances that restrict production. The region also doesn’t face the same political headwinds of places in Europe, which are quickly moving away from fossil fuels, and it doesn’t face the daunting financial obstacles of Venezuela. Costly infrastructure is mostly already in place, drillers have high rates of productivity and the basin features relatively low breakeven costs, which measure the minimum oil price needed for profitability.
But the biggest advantage of the Permian is its massive, untapped reserves that are buried in the layers of shale rock. The potential is so big that it outstrips even the Middle East’s famed fields.
“We’ll stop using oil long before we run out of Permian inventory,” said Artem Abramov, head of shale research at Rystad Energy.
The consultancy estimates the U.S. has more than 76 billion barrels of untapped reserves in oil fields that aren’t yet producing, most of which can be found in the Permian.
This is why concentrating the equity base and pumping ROIC is so much more important to TPL than anything else. Any other use of capital will almost assuredly have a lower rate of return.