US Oil Producers Face New Challenges as Top Oilfield Flags

SEATTLE (Oil Monster): U.S. oil producers are grappling with geological limits to production growth as the country's top oilfield ages and produces more water and gas and less oil - and may be nearing peak output.

The Permian basin was the centerpiece of the shale revolution that began nearly two decades ago and spurred the U.S. to become the world's top oil producer, stealing market share from the Organization of the Petroleum Exporting Countries (OPEC) and other top producers.

 Slowing output growth and rising costs would make it difficult for oil producers to pump more and bring down oil prices to consumers, as envisioned by U.S. President Donald Trump in his "drill, baby, drill" mantra.

The Permian is pumping 6.5 million barrels per day (bpd), a record level and nearly half the all-time high 13.5 million bpd of crude that the U.S. produced in December.

But the Permian is flagging. Since the widespread introduction of hydraulic fracturing, the technique that enabled the shale revolution in the mid-2000s, thousands of wells have perforated the Permian and fractured the rock to extract oil and gas.

 Relentless drilling to reach record production has exhausted the core of the Permian's two largest sub-basins: nearly two-thirds of the Midland formation's core has been drilled, and slightly more than half in the Delaware formation, according to data from analytics software company Novi Labs.

"We've never been in a position before where we were on the back-half of the inventory story of the Permian basin," Novi Labs head of research Brandon Myers said.

That has rung alarm bells across the industry, as drilling in the fringes of the basin, on lower-quality prospects, means less oil output and more water and gas. At conferences and on earnings calls, analysts and executives are discussing the issue with a growing sense of urgency.

 "We think that between 2027 and 2030 it's likely that the U.S. will see peak production, and after that some decline," Occidental CEO Vicki Hollub said earlier this month at an industry conference in Houston.

Harold Hamm, founder of shale producer Continental Resources and a key figure in the U.S. shale boom, agrees. He said at the same conference that U.S. oil production is already beginning to plateau.

For now, output is still rising.

Shale executives expect oil output growth from the Permian to slow by around 25% this year to 250,000 to 300,000 bpd. The government estimates higher growth, of about 350,000 bpd, but even that would be the smallest increase in the basin's oil output since the COVID-19 pandemic.

 Courtesy: www.reuters.com