$TPL-specific news is pretty scant as we await dividend declaration and the 10-K. News from the Permian, however, remains constant. Here are a few things that caught my eye recently:
Produced water in the Permian Basin is projected to grow 5 percent a year to between 7.5 billion and 8 billion barrels a day by 2025, according to Helstrom.
“Just the amount of produced water coming online will strain the system without everyone working together to find solutions,” he said.
He said the water cut is very high in the Permian Basin, with two to four barrels of water produced with each barrel of oil. If those water barrels can’t be managed, operators may have to shut in wells and limit production, he said.
This will be a theme for 2019
The decline began in mid-November after Plains All American Pipeline LP expanded the capacity of its about 300,000 barrels per day (bpd) Sunrise Pipeline.
The drawdown accelerated this month when Enterprise Products Partners LP began shipping crude on a converted natural gas liquids pipeline, the 200,000 bpd Seminole-Red line, two months ahead of schedule.
“They talked about improvement and now it was about hyper-targeting completions even more methodically in 2019,” explained Johnson. “Then a crude pricing anomaly happened over the holidays and everyone hit pause.”
Although concerns about market risk and perceived global demand linger, service companies have had the opportunity to put the less frenetic pace to their advantage by refining some of their internal processes, Johnson added.
“With a bit more patience this year operators can have their logistical systems improved (think water and proppant strategy), oilfield services will continue to give further pricing incentives to pump and more pipelines will come online,” said Johnson. “These are all considerations that make both logical and economical sense.”
Although his firm holds the view that much of the downward spiral in crude pricing was algorithmic, Johnson opined that operators “wanted the dust to settle first and see the market act more rationally.” Now, he added, “smart operators” hold the advantage.
“Strategic planning and expert-level execution takes position and timing, all things smart operators have on their side now,” said Johnson. “We’ve heard of stories where the biggest operators in the world have break-evens in the teens and low-20s in the Permian. Kudos to the operators that learned their lessons from the rough patches of last cycle and improved every department under the sun.”
Concho Resources Inc., one of the largest operators in the booming West Texas region, fell more than 13% in the two days last week after it released earnings that failed to meet analyst expectations for cash flow. Concho also said it plans to cut spending 17% from previous guidance, a reduction that would lead to oil output growth of 15% from the fourth quarter of 2018 to the same period this year, instead of 25%.
The bond between U.S. producers and financiers doesn’t appear to be completely broken, and the strongest shale companies continue to attract Wall Street backers. Industry bellwethers such as EOG Resources Inc. have begun to generate free cash flow and don’t need outside funds. They also have locked up land for future drilling locations and have less need to pay out billions for new inventory, a significant source of capital demands in previous years.
The tumble in oil prices at the end of 2018, combined with investor demands for fiscal discipline, has prompted most shale executives to only invest what they earn in cash flow, ending years of debt-fueled growth. But the scale of past investments and low service costs mean that the cutbacks will only put a dent in growth projections.
On average, U.S. explorers have cut their capital budgets 4 percent but are predicting a 7 percent increase in production, according to RS Energy Group, a Calgary-based researcher.
Exxon has homed in on the Permian Basin of West Texas and New Mexico as it struggles with dwindling production in formerly prolific oil provinces such as West Africa. The Microsoft partnership, which could add as much as 50,000 barrels of daily output, marks a strategic shift for Exxon, which historically developed technological tools and techniques in-house.
“We realized that we have to do something fundamentally different from a technology standpoint to enable us to grow to meet those volumes,” Anish Patel, Exxon’s leader on the project, said by phone.
TPL, among many otber things, is partly a call option on drilling technology.
Occidental has developed a detailed, standardized subsurface workflow that draws on a large company database to evaluate where and how to develop its huge inventory of Permian acreage, said John Polasek, vice president of geoscience for Occidental. The database consolidates its rock and reservoir data as well as results from companies actively working these plays.
Predictions are based on its store of geological, geophysical, geochemical, and petrophysical information. They are compared to the well results. If model predictions are validated by the “actual performance we know we have this figured out,” Polasek said.
Early results are promising. Occidental’s 30-day average production has increased annually since 2012, and it has drilled 26 of top of 50 wells in the basin while drilling 5% of the wells, he said.
Polasek pointed out that those top wells were completed with “25% less proppant than our peers. We feel we have done quite well with less and that is critical to becoming profitable in shale.”
Anyone know of a trust with lots of land that could host solar and wind projects?
Texas is also sixth in the top ten U.S. solar states, according to the Solar Energy Industry Association (SEIA).
In 2018, wind power provided 18.6 percent of the energy use in Texas, while wind will make up 23.4 percent of the 2019 generation capacity, according to ERCOT estimates from last month. Solar power is expected to account for 2.1 percent of the 2019 generation capacity in Texas.
Renewable energy and battery storage in Texas is set to increase in coming years. So is oil and gas production in the fastest-growing U.S. shale basin. Booming oil drilling will require more power to the grid and some of it, as odd as it may seem, will be coming from solar and wind power.
. It possesses key geological fundamentals in abundance. In addition, the Permian Basin and other North American basins are a fertile cradle of technology. They possess critical factors for innovation: private mineral ownership, a strongly networked community, service company partnerships and immediate rewards for risk taking. The Permian offers hard won lessons from more than a decade that include: addressing needs for energy transport, water handling, sand usage and variations in gas/oil ratios. Building on this experience, other basins can leapfrog ahead.
The Texas Pacific Land Trust Investor 