Company leaders expect strong 2017 for West texas oil
The business of building well pads grinds nearly to a halt when the drilling stops.
Around Feb, when oil prices bottomed at regarding $26 a barrel, Silverado contracting on highway 385 found themselves with less than half the 20 employees who turned dirt during the boom.
Kevin Shifflet, the yard manager for the company on highway 385, said they struggled to find 40 hours of work in a week. He took a pay cut. And after they might, they turned odd jobs like preparing construction sites for office buildings rather than readying prairie for future drilling.
But that is changing. And now, when weathering a two-year bust, it seems 2017 will be a busier year within the oil field. Not just for Silverado, however the broader region.
“We went weeks and months without getting bids at times, and currently it's like once a week,” Shifflet said, adding that companies are moving up deadlines to have the pads ready so they begin work on the wells quicker, he said. “It's really busy out there.”
It's not just the prep work in the oil field that foreshadows a recovery in West texas. alternative signs include hiring within the region, ongoing land grabs and more announcements by oil companies of plans to pay additional within the region in 2017. All of that dovetails with a brighter outlook for oil costs following OPEC's recent announcement to cut production, however it may have happened anyway.
“I believe 2017 is the Permian's year,” said Joseph Triepke, the founder of Dallas-based research firm Infill Thinking and an Odessa native. “Companies were going to raise spending levels anyway, and opec was just icing on the cake.”
Triepke estimates 150 rigs are going to be added within the permian Basin in 2017 if the opec deal holds.
More conservatively, the energy intelligence firm Genscape estimates regarding 40 rigs will be added within the permian Basin by mid-2017.
“It comes back to the economics of the permian right now,” said Jodi Quinnell, manager of crude analytics for the energy intelligence firm Genscape. “They are good. they're probably some of the best as you look across the shale plays.”
The permian Basin's rig count has already been rising for months.
After years of focusing on the best performing areas of the permian Basin and honing techniques from the number of sand employed in a frack job or the length of a laterally drilled well, companies within the Midland Basin will break even or even profit on a well in the oil value vary of $45 per barrel, according to Genscape. It's lower in the Delaware Basin to the southwest.
“Before the opec announcement, we definitely thought the permian was going to be kind of the hotbed of activity, wherever a lot of the activity would be added back,” Quinnell said. “And over the last seven months, we've seen that happen.”
Oil companies have announced billions of dollars of land grabs in recent months, amid rising acreage values, often to add onto the sweet spots wherever they already focus.
Midland-based diamondback Energy in mid-december announced plans to buy 2 sister companies and their acreage within the Delaware Basin in the southwest permian Basin in a very $2.43 billion cash and stock deal. Company officials said the deal supported plans to keep adding rigs in 2017.
Permian Basin-focused companies like diamondback still outperform rivals elsewhere as they need through the two-and-a-half-year bust. and lots of have announced plans to boost spending in the region in 2017 by concerning 40 %, Triepke said, citing averages from 15 companies he tracks.
Many of these budgets were announced before opec finalized a deal November. 30 to cut overall production by $1.2 million barrels a day to boost costs, with some non-members of the cartel like Russia agreeing to additional cuts.
It reversed a 2014 decision by the cartel to keep pumping, despite oversupply created in part by companies in regions like the permian Basin, in an effort to win market share.
When the 2014 call sent costs into a nosedive on thanksgiving day 2 years ago, it took months for the cartel's call to show its effects in West texas through a declining rig count. This time, there is also a similar lag as 2017 budgets take effect and companies add rigs, Triepke said.
“By Feb, you will not even recognize this place,” Triepke said.
In the end, economist Ray Perryman wrote, “OPEC blinked.” and also the result was a stronger outlook for oil costs even whereas analysts awaited proof that the opec members with a long history of cheating quotas would make good on the agreement to cut production.
Permian Basin oil production, today concerning 2 million barrels a day, ne'er significantly declined throughout the bust.
Companies in the region developed technological advances and additional efficient techniques, whereas service companies faced pressure to lower prices, to the point that oil companies found it profitable.