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Shale Oil Booming Again in Permian

Read Time: 3 mins

With publicly traded producers such as Occidental and Chevron preaching discipline, privately owned operators are leading the surge in production.

Oil prices above $80 a barrel is once again spurring a revival of shale drilling in America’s biggest oil field, where production is expected to return to pre-pandemic highs within weeks.

Only this time, the surge is being driven by private operators, rather than the publicly traded companies that fueled the previous booms. And they see little reason to slow things down.

Increased access to financing and strong oil demand has created an opening for closely held producers, most of whom are backed by private equity or family money, to ramp up output in West Texas and southeast New Mexico. With the other major US shale basins either holding steady or declining, according to BloombergNEF, the surging growth in the Permian isn’t likely to risk upsetting OPEC or tanking crude prices as it did in previous shale booms—at least not yet.

“It’s a win for the privates without being a loss for the oil markets,” said Raoul LeBlanc, an analyst at IHS Markit Ltd. “The big takeaway is that private growth won’t ruin the party.”

It’s a tenuous balance, and one that could shift quickly if oil prices continue to march higher. US production growth was so strong over the past decade—and took so much market share from OPEC and its allies—that the cartel was willing to engage in all-out supply wars in both 2014 and 2020. The temperature has since come down as global demand for oil surges, especially amid a need to supply fuel-hungry Europe and Asia, removing some competitive pressure between suppliers.

That dynamic is exactly the signal private drillers have been waiting for. Trigo Oil & Gas LLC, three-person upstart company, just drilled its first two wells in Reeves County, Texas, near the New Mexico border, with a third on the way. After spending most of the pandemic trying unsuccessfully to finance the wells, Trigo scored deals in August with two Oklahoma City-based investors, right before a lease was about to expire, said its 37-year-old CEO, Travis Wheat

Trigo Vice President of Business Development Devin Speir and President & CEO Travis Wheat at the company’s EFG State 2H well near the Permian Basin town of Orla, Texas.

Private oil companies like Wheat’s will make up more than half of US. production growth next year, Rystad Energy said. And the surge has already started. According to onshore US rig data from Lium LLC, little-known Mewbourne Oil Co, founded by Louisiana-born army officer Curtis Mewbourne in 1965, is now running 17 drill rigs in the US, more than Exxon Mobil Corp and Chevron Corp combined. Endeavor Energy Resources LP, owned by octogenarian billionaire Autry Stephens, and CrownQuest Operating LLC, led by Republican donor Tim Dunn, are together operating the same number of rigs as Permian heavyweight ConocoPhillips.

With private fleets running hot, production from the Permian Basin will likely reach its pre-pandemic record high of 4.9 million barrels a day as soon as this month and will continue climbing steadily in 2022, Rystad Energy forecasts. The Permian is a particularly attractive place to ramp up production because of its low breakeven costs and high rates of productivity.

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