Arthur D. Little Analysis Finds Collaboration is Central to Unlocking Enormous Oil and Gas Potential of US Permian Basin
October 17 2018 - 3:30AM
Business Wire
Arthur D. Little (ADL) today released analysis that highlights
the vast potential of shale oil & gas extraction across the US
Permian basin. Production in the area, which spans Texas and New
Mexico, could reach 5.4 million barrels of oil equivalent (BOE) per
day by 2023, putting it ahead of every OPEC country except Saudi
Arabia.
However, to achieve these ambitious targets the US shale
industry will have to dramatically change how it operates.
Traditionally it has been driven by independents, but to meet the
$310 billion capital expense to unlock the Permian’s reserves and
drill 41,000 new wells, companies will have to shift strategy and
adopt new business models.
ADL sees four key issues that independents will need to focus
on:
- Build partnerships: Move away
from current models of selling direct at the wellhead, instead
creating demand-pull and long-term partnerships with refineries to
guarantee steady cash flow
- Command a price premium:
Overcome the current discount of Permian prices against world
benchmarks by investing in pipeline and export-shipping capacity,
as well as adopting more sophisticated trading capabilities to
reduce pricing differentials and guarantee profitability
- Increase operator collaboration:
Fully exploiting the Permian is not possible with existing
infrastructure. Operators will need to work together to build
vital, non-competitive services such as trucking, roads, water
usage, power, housing, school and hospitals, or face unsupportable
operational costs
- Feed the capital machine:
Financing is the biggest challenge for independents and they will
require creative new funding solutions to raise the estimated $310
billion required for Permian expansion
Bob Peterson, Partner and North America Energy Leader,
ADL, explains: “The rush to develop the Permian will drive a
level of activity not seen in the history of the oil and gas
industry. Growing production to exceed that of every oil-exporter
bar Saudi Arabia and Russia in just five years is an enormous
challenge. To succeed, independent oil producers will need to
radically change how they operate, increasing collaboration and
creating new ecosystems to deliver the necessary infrastructure and
investment. In short, independents must act in a much less
independent manner if the Permian’s potential is to be
realized.”
The ADL analysis “Rethinking Independents” is available here:
www.adl.com/PermianImpact
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For Arthur D. LittleCate BonthuysTel: +44
7746546773cate@catalystcomms.co.uk