Last week the U.S. Geological Survey (USGS) announced the largest estimate of continuous oil that it has ever assessed. The area assessed is in the Permian Basin, a region that has been producing oil continuously for nearly 100 years.
The Permian Basin lies underneath western Texas and southeastern New Mexico. The geology of the Permian Basin is rich and complex, both horizontally and vertically. The Permian Basin has commercial accumulations of oil and gas in stacked layers, at depths ranging from 1,000 feet to more than 25,000 feet. The greater Permian is made up of several subsidiary basins, the largest of which are the Midland and the Delaware.
The new USGS assessment is of the Wolfcamp shale in the Midland Basin portion of Texas’ Permian Basin. The new USGS survey estimates that there are 20 billion barrels of undiscovered, technically recoverable oil in the Wolfcamp alone. Quoting from the USGS news release:
“The fact that this is the largest assessment of continuous oil we have ever done just goes to show that, even in areas that have produced billions of barrels of oil, there is still the potential to find billions more,” said Walter Guidroz, program coordinator for the USGS Energy Resources Program. “Changes in technology and industry practices can have significant effects on what resources are technically recoverable, and that’s why we continue to perform resource assessments throughout the United States and the world.”
It is important to understand what this assessment actually means. This oil has been assessed as an “undiscovered resource.” This scientific assessment means the forecasters have a certain degree of confidence that the oil is there. For this particular assessment, the 50% confidence level is that there are at least 20 billion barrels there. The study further estimates that there is a 95% chance that there are at least 11 billion barrels there, and a 5% chance that there are at least 31 billion barrels there.
However, the fact that the assessment refers to the “resource” means that they are estimating the technically recoverable oil in place. This says nothing of the economics of recovering this oil. The amount that would be economically worthwhile to recover at prevailing commodity prices — which would be classified as “proved reserves” — will be a smaller subset of the assessed amount. It would even be zero at a sufficiently low oil price. This is merely an attempt by the USGS to estimate the amount of oil that could be extracted over time if cost was not an object.
But given the history of the Permian Basin, it’s a pretty safe bet that there is still a lot of oil still left to produce there. The Permian Basin began producing oil in 1921. The Texas side of the Permian has already produced nearly 30 billion barrels of crude, as well as 75 trillion cubic feet (Tcf) of natural gas. Permian crude oil production has more than doubled since 2010 largely as a result of hydraulic fracturing in six low-permeability formations: Spraberry, Wolfcamp, Bone Spring, Glorieta, Yeso and Delaware.
According to the Energy Information Administration’s (EIA) most recent Permian Region Drilling Productivity Report, the Permian is presently producing 2 million barrels per day (bpd) of oil and 7.3 billion cubic feet per day (Bcf/d) of natural gas. This accounts for more than 23% of current U.S. crude oil production, and exceeds the combined oil output of the Bakken and the Eagle Ford:
Source: Energy Information Administration.
I have heard some dismiss this assessment as much ado about nothing, and I have heard some characterize it as a new oil discovery. It it neither. This new USGS assessment is merely an attempt to put some framework around how much oil may exist in one of the multiple producing formations within the Permian.