Texas’ Permian Basin Boom May Bust With Low Crude Prices

Image via Flickr/ bloomgal

The Permian Basin in Texas is one of the richest oil fields in North America. It has been drilled since the 1920s, but recently the actual potential of the area has become known. The shale rock of the basin holds up to an estimated $5 trillion worth of crude oil.

However, that number could become completely moot if the forecast laid out by analysts proves to be true. Marshall Adkins of Raymond James & Associates says that crude could be headed for as low as $70 per barrel by next year. If this happens, then many of the smaller outfits in the basin will go broke and face takeovers from larger forces.

Bryan Sheffield is a third generation oil man in the basin. As a wildcatter who has experienced success in the industry, even he says he will close down half of his drilling rigs and begin headhunting smaller companies if the price drops to the $80 per barrel range. This type of price drop would drastically slow drilling in the Permian Basin, which is by far the richest shale formation in the United States.

Permian Wells Will Lose Money If Price Drops

Because of the shale rock layers and varied geological makeup of the Permian Basin, some wells cost more than others to drill and harvest the oil from. Because of this, many of the wells in the basin would be shut down if the price drops. According to Bloomberg, some wells may even become money losers in the event of an oil price bust.

Current Conditions Are Profitable

For now it appears that drillers in the Permian are safe from the threat of an immediate bust. While that threat may loom on the horizon, for now the policy is “Drill! Drill! Drill!” With wildcatters finding new sites daily the profits keep piling up. Only time will tell for sure if the prices really will bottom out, and if they do, you can bet there will be many smaller companies that get swallowed up in the aftermath. If they don’t then the big companies will keep raking in record profits while we pay for it at the pump.