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Shale Is The New Black; Relief for Permian Bottleneck?

Hilcorp Energy Acquisition 

Jeffery Hildebrand recently announced (A Houston, TX Native I might add)  his company Hilcorp Energy Co. is acquiring an assortment of older Alaskan wells and pipelines from BP Plc for ~5.6 Billion dollars. BP held these assets for more than 60 years. However, as momentum has increased for shale oil production methods in the Permian Basin, focus shifted away from some of their more “traditional” production methods.  A high decline rate found in shale based wells poses the biggest concern for investors. Some statistics indicate that these wells lose up to 70% of production in the first year of operation. Due to this, there’s a need for constant re-investment to find and drill new wells. Comparatively, conventional wells cite losing as little as 5% annually.

Crude Oil Price Chart - Shale Blog

Despite having a fairly negative reputation, shale plays appear to have had a very beneficial effect on the market volatility. This should lead to more stable prices in the long term. Shale wells likelihood of breaking even (or even profiting) in the $50-$60/barrel range increased due to a number of reasons. Notably, the reduction of costs to drill new wells coupled with the speed at which new wells can be brought online help stabilize profitability.

Relief In The Permian

Long awaited relief for the bottleneck in the Permian seems to be in sight. A second pipeline from the basin came online in mid-August and Moda Midstream of Ingleside Texas would accept the crude EPIC Midstream. The supply picture aside, the one major concern for price stability moving forward will be worldwide demand. Fears of recession in certain countries will influence pricing. While retail sales and employment figures stateside still look good, some economists fear we may have already entered a manufacturing contraction.

Side Note About Hurricane Dorian

Hurricane Dorian - Shale Blog

For those who may live or know those who live in Florida, Hurricane Dorian has changed course. It is speculated to make direct landfall in the sunshine state with no obstructions, thus increasing the potential for devastating conditions. Stay safe and take proper precautions!

Find out more about what’s going on in the world of Oil & Gas with our other industry updates:

 June – US/Iranian ConflictSeptember – Saudi Oil Attacks  , November – Delays, Restriction, & Costs 


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