The Permian Basin: becoming world’s biggest sources for crude oil.

The Permian Basin is a geological formation that covers 250 to 300 miles of west Texas and Eastern New Mexico and comprises 7,000 oil fields across 59 counties. The region gets its name from fossils that date back to the Permian age, which were first reported by geologists in 1858.

The area has been producing oil since 1921. But ten years ago, the area was left for dead. The wells weren’t pumping, and companies operating in the area shut things down and capped their well heads.

That was before new drilling techniques. Fracking changed the Permian, and has resulted in a renaissance of drilling activity in the basin. Today there are over 400 drilling rigs drilling for oil and gas in the Permian Basin. And in just three years, oil production in the Permian has doubled to the highest levels seen in the 1980s.

Now “the Basin” accounts for 57 percent of all Texas oil and 25% of all U.S. production.

 

permian-basin-production-chart

Darrel Koo, an energy researcher at ITG Investment Research in Canada, forecast that the Permian Basin’s oil production will grow to 2.5 million barrels a day by 2025 under his base case, which includes oil prices at around $90 a barrel. With higher prices and other favorable conditions, that could rise to 3.2 million barrels a day by 2025, he said.

The Pioneer Natural Resources (PXD) CEO, Scott Sheffield recently stated that the Permian was “the second-largest oil discovery in the history of the world.” Saudi Arabia’s Ghawar field is the largest.

Domestic production has grown so large that last month; the International Energy Agency announced the United States surpassed Russia and even Saudi Arabia in oil production.

Investors looking for the most rewarding oil and gas opportunity should look no further than the Permian Basin.  The economics of this region make it far more profitable than other areas like the Bakken or Eagle Ford.

Look at the returns of oil and gas companies operating in the Permian Basin. A portfolio of Permian pure plays would have you up 40% year-to-date. By comparison, over the same time frame, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) increased only 15%.

Investors are extremely excited about the opportunities in the Permian Basin. This is not the case of environmentalists fighting against fracking techniques. This oil boom by using new technologies and new drilling techniques makes us wonder about the future of renewables energies.

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