The Wall Street Journal

How the Permian Basin Became North America's Hottest Oilfield


The U.S. has more than doubled its crude oil output over the last decade. Much of the growth is due to the Permian Basin of West Texas and New Mexico. WSJ traces the hotspot of North America's crude oil boom, with a look at challenges that producers in the region face.

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- [Narrator] This is a map of known sediment basins
in the United States.
Many of these regions hold deposits
of natural gas and crude oil.
Now, this map compares how much crude oil each basin holds.
Of the many formations scattered across the country,
one reigns supreme.
- With our new estimates of the Permian Basin,
that resource estimate is on par with
what it's been estimated in the Middle East.
- [Narrator] The first oil well was drilled
in the Permian Basin of Texas and New Mexico
roughly a century ago, and now the Basin produces more
than four million barrels of crude oil on a daily basis.
Surging Permian production has helped to make the US
the top oil producer in the world.
That growth hasn't come without challenges.
Let's unravel how this strip of desert
propelled America's ascent to crude oil superpower.
The Permian Basin's first commercial operations began
at Mitchell County in Big Lake, Texas.
The region's resources soon proved critical.
Data collected in the 20th century
show wells in the Permian yielding
10 to 22% of national crude oil production.
That oil was key in moments of international conflict.
Crude was a key commodity in World War II.
Refined fuels stemming from the Gulf Coast
powered engines and aided in the manufacture
of everything from roads to uniforms and bombs,
and during the global oil crisis of 1973,
oil from the Permian helped stabilize US markets
as OPEC nations cut supply in an embargo.
For years, there was steady growth in the region,
but following the 1970s energy crisis, oil prices dropped
and drilling became far less profitable.
Production dwindled.
Meanwhile, new extraction methods developed incrementally.
Hydraulic fracturing, also known as fracking,
was invented in the late 1940s,
but decades would pass before it was used widely.
In the modern version of this process, producers drill
through several layers of the Earth's crust.
Then, they blast a mixture of water, sand and chemicals
through the rock at a high pressure.
This fractures the rock and unlocks oil from the crust.
For many years, producers used fracking
to maximize production from conventional resources,
large reservoirs of crude oil
that were easy to draw to the surface.
But, a breakthrough in the nearby Barnett Shale
unlocked vast new reserves in shale rock formations.
In 1998, an engineer at Mitchell Energy
used a dramatically higher ratio of water
to chemicals and sand to blast through sediment.
The new method made it possible to extract resources
that weren't previously commercially viable.
While fracking helped producers recover every drop possible,
new drilling technologies expanded their reach
especially horizontal drilling.
It became common in the Permian in the 2000s.
The advent of horizontal drilling meant
that producers could target multiple formations
from a single site at the surface.
These wells can sometimes stretch for miles.
Fracking and horizontal drilling are particularly effective
for the Basin's geology.
The Permian's Western subbasin, the Delaware,
has more depth than other parts according to the USGS.
- Because they are so thick, industry is able
to put in multiple wells within that stack of units
and drill multiple horizons to produce oil,
and that is really what's unique about that area.
- [Narrator] The Permian has significant deposits
of shale rock, and the combination of fracking
and horizontal drilling in the 2000s
made the tight oil in shale recoverable.
This combination set the stage for the shale revolution
which picked up steam in the 2010s.
This put the Basin at the center
of a crude oil renaissance in America.
The national production rate,
which had dwindled for decades, mounted a turnaround.
Since the mid-aughts, the national crude production rate
has mostly climbed upward on the strength of the Permian
save for a short decline that began in 2015.
The year prior, US crude prices plunged 50%.
Many producers in the Basin scaled back production
to prevent further losses, but the producers that survived
were in position to drive the Permian to new heights.
Moving ahead to 2018, the United States surpassed
Saudi Arabia and Russia to become the world's leading
oil producer, but this production brought new challenges.
First is the issue of well placement.
Here's an oil field outside of Odessa, Texas in 2003.
By 2018, these fields were brimming with well pads.
That can put a damper on production rates.
- Producers in recent years have tried to space wells
more closely together to maximize the amount of oil and gas
that they are able to get out of their acreage.
They found, in some instances, that
that hurts the output of individual wells.
Producers are kind of going back and increasing
the distance between the wells that they drill.
The result is that they have fewer overall locations
to drill the acreage that they have.
- [Narrator] And the problems don't end there.
The pipelines that run through the Permian
have had a capacity issue.
In recent years, oil production in the Permian
has increased faster than pipeline capacity
leading to bottlenecks and discounted prices,
and when capacity isn't sufficient,
producers are instead left to transport resources
by rail or truck, or they have to slow down production.
New pipelines are scheduled to come on line in late 2019
which could help alleviate price discounts.
But, the energy producers in the Permian can't escape
their fraught connection to the climate and environment.
Consider the issue of flaring.
The natural gas flowing from the Permian
is mostly a byproduct.
When producers drill for oil,
they also unearth natural gas which is less profitable.
Facing limited profitability and pipeline capacity issues,
many drillers choose to burn their fuel onsite.
Flaring in the Permian is at all-time highs
according to Rystad Energy.
- That's a concern, first of all,
because it's a colossal waste of energy,
but more so, they can cause local air quality issues
if they're not burning properly,
and we're releasing a bunch of greenhouse gas
into the air as carbon dioxide that we're wasting,
so flaring benefits nobody.
The only thing that it's better than is
releasing the methane into the air directly.
- [Narrator] The string of boom towns and man camps
along the Permian Basin represent
the heartbeat of American energy.
All eyes are on the region as the US fights
to maintain its position atop global oil markets.
(orchestral music)

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