Permian seen second to Saudis for spare oil-output capacity

By Wael Mahdi on 2/5/2018

KUWAIT (Bloomberg) -- The U.S.’s Permian basin is looking like Saudi Arabia, with as much as 1 MMbbl of spare oil capacity ready to go into production, according to Nansen Saleri, former head of reservoir management at Saudi Aramco, the world’s largest crude exporter.

Oil producers in the Permian basin have at least a combined 500,000 bpd of idle oil production capacity, according to Saleri, who is now CEO of Houston-based consultant Quantum Reservoir Impact. Saudi Arabia’s spare capacity is about 1.5 MMbpd, according to data compiled by Bloomberg.

The Permian basin of Texas and New Mexico is the engine for U.S. shale production and acquisitions, helping to increase U.S. output to more than 10 MMbpd in November for the first time in more than four decades. ExxonMobil Corp. is spending billions to triple output by 2025 from the Permian, where its costs are as low as $15/bbl.

“For decades there was one country and one company that had spare capacity and that country was Saudi Arabia and that company was Saudi Aramco,” Saleri said. “Now we are seeing an analog to that in the Permian.”

West Texas Intermediate oil futures traded in New York have climbed 7.4% this year. The benchmark grade was 56 cents lower at $64.89/bbl at 9:44 a.m. on Monday in Dubai.

The Permian region can increase output in response to higher demand in three to four days, faster than anywhere else except fields run by Saudi Aramco, known officially as Saudi Arabian Oil Co., Saleri said. Producers in the Permian will probably pump at least 3 MMbpd of crude oil in a year, up from about 2.6 MMbpd currently, said Saleri.

“The operators who aren’t efficient have left the game and only those super-efficient operators are staying,” he said. “If operators believe that oil prices will stay above $60 for the coming six months they will go on a drilling program.”

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