Permian Basin Oil Production Challenges and Your Proposed Solutions

Published: 2021-09-13 10:20:06
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The oil industry in the Permian Basin is booming, again. Unemployment is at its lowest and sales tax receipts are soaring. The housing market in Midland, Texas is the best in the country right now. But what goes up must come down and several underlying critical issues are quickly rising. The growing production volumes in the area mean good profits as long as the oil and gas quality is good and can be sold. If the production volume output becomes more than the volume sold will the market be able to keep up? Several people have left their jobs as professionals as well as in service industries to benefit the higher wages from the good oil market. As a result, there is a shortage of teachers, bus drivers, and waiters in the area, but the higher cost of living has made it almost impossible for people to go back to jobs where there were making less than half, or two times less than they are making in the oilfield. Midland has seen a boom before but if the market isn’t able to stay strong and maintain these higher salaries what will happen to the area and its citizens financially when the low market creates another bust?
Transportation is as much of a problem now as it was in the mid-1800s. The biggest challenge at the forefront of the success of the Permian Basin is not only how to transport what is produced but also where the product can be sold at the most profitable price. The pinch point currently is not enough pipelines out of the Permian Basin to move the product to a sales point where it can be sold at a cost that is worth capital spent on pulling it out of the ground. The bottleneck is occurring because the pipelines are being filled more quickly than expected. Companies that have a higher pull with buyers are getting first volume priority. Lesser known operators will be risking profit for transport. According to Judd Clemente, in his April 2018 Forbes article “The Permian Basin Needs More Oil and Natural Gas Pipelines”, railways and trucking transportation will be able to compensate once daily production exceeds 400,000-500,000 barrels per day of crude. The cost to move crude from the Permian to the Gulf Coast oil hubs by rail is currently at $6-$8 per barrel. Trucking is currently two to three times that of rail transport. Ultimately if an operator does not have firm capacity and chooses to continue producing, they will be taking a huge hit on what their product is worth because it is much more expensive than ever to transport crude.

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