Breaking News
Investing Pro 0
🚨 NDVA surged 43% - these 3 AI stocks could be next Start Free Trial

Permian’s Growth Spurt at Risk of Being Stunted by Oil Collapse

Published Dec 19, 2018 12:00AM ET Updated Dec 19, 2018 06:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

(Bloomberg) -- The U.S.’s biggest oil field may be about to pump the brakes if crude keeps plunging.

Just 10 weeks ago, the Permian Basin was on course to grow almost 1 million barrels a day by the end of 2019, potentially surpassing Iraq, OPEC’s second-largest producer. Now, it may not grow at all, removing a large chunk of expected production from global oil markets.

Shale is highly sensitive even to small changes in prices and the Permian is not immune. With West Texas Intermediate oil at $70 a barrel, the basin would likely produce 4.9 million barrels a day by end of next year, but at $40, output will likely stagnate at around 4 million barrels a day, according to Oslo-based consultancy Rystad Energy.

The U.S. benchmark dipped below $46 in New York on Tuesday, down almost 40 percent from early October. In Midland, the heart of the Permian, prices were even worse, touching $38.99 a barrel, the lowest since the depths of the 2016 crash.

“We’ll definitely see some companies next year revisit their activity plans versus what they initially had in mind,” said Artem Abramov, vice president of shale analysis at Rystad.

It’s already starting to happen. Diamondback Energy Inc., one of the biggest Permian-only producers, is rowing back its 2019 capital budget, forecasting about $2.9 billion of spending, less than analysts’ estimates of $3.2 billion. Chief Executive Officer Travis Stice said the “dramatic decline in oil prices” were to blame as well as higher service costs.

Breakevens for new wells in various counties that contain the Spraberry layer of oil-soaked rock in the Permian currently average between $32 to $47 a barrel, according to Bloomberg NEF data. But well performance varies substantially. In Upton County, for example, top-quartile wells make money at $31 a barrel, while the bottom quartile need $65.54 a barrel.

“BNEF’s break-even model calculates that an average Permian well can produce oil for under $50 a barrel, but only the top performers in the Denver-Julesburg or Bakken can match that,” BNEF analyst Tai Liu said Friday in a research note.

The Permian’s better productivity means output isn’t dropping, just slowing down, if oil averages $50 a barrel and halting growth at $40, Rystad said. IHS Markit and RS Energy, agree that modest growth is likely at current prices because companies in the Permian have dropped their well costs so much over the last four years through productivity improvements.

“There’s a lot less cash flow to go around but it’s not an existential threat like it was in 2014,” said Ian Nicholson at RS Energy, referring to the oil-price crash of that year. Higher-cost production in the Bakken in North Dakota and Eagle Ford in south Texas are more susceptible to the recent price plunge, he said.

One of the key advantages of shale is that crude flows from wells within weeks of drilling, rather than years for large, offshore megaprojects that defined the production growth in the early 2000s. That means shale can be turned on or off like a tap, depending on whether it’s profitable or unprofitable at any given price. That may be of no consolation to equity investors starved of earnings, cash flow and dividends but it does help to rebalance oil markets.

“If we don’t get those barrels in 2019, they will simply be waiting to show up in 2020, or 2021, or whenever the market needs them,” said Raoul LeBlanc, a Houston-based analyst at IHS Markit. “The eventual limit is sweet spot exhaustion, and in the Permian, that will not happen in the next seven years.”

Permian’s Growth Spurt at Risk of Being Stunted by Oil Collapse

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your profile, will be public on and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email