Three Major Domestic Oil Booms

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As oil prices begin to push higher on the fear of Iran sanctions, we need to look for opportunities in the oil rich domestic boom.

Here’s what we found.

The Permian Basin has between 60 billion and 70 billion barrels of recoverable oil, worth $3.3 trillion at current prices.  Since 1923, notes Bloomberg, more than 30 billion barrels of oil have been extracted.  Yet, according to IHS Markit, the region still hold more than twice as much recoverable oil as has been drilled over the last 94 years.

“The magnitude of the rebound in Permian Basin liquids production is unprecedented,” notes LMT Online. “Not so long ago, many in the industry were saying the Permian was dead. The Permian is now a model for development of more than 25 onshore “super basins,” each with more than 5 billion barrels of cumulative production and more than 5 billion barrels of remaining production, IHS said. The firm estimates those basins hold more than 840 billion barrels of oil, far more than required to meet 2040 global demand.”

But there’s a problem.

Output at the Permian Basin currently stands at around 3.3 million barrels per day (BPD) and has increased 800,000 BPD over the past year.

That’s sizable growth.

Unfortunately, growth may slow because there is only enough pipeline capacity to move 3.6 million barrels through. This could present a problem for the next year.

Then there’s the Bakken.

Underneath North Dakota is the Bakken formation, which is part of the Williston Basin that lies under parts of South Dakota, Montana, and southwest Manitoba. Right now, oil production from this formation is back to record-breaking numbers. In fact, Lyn Helms, director of the North Dakota Department of Mineral Resources Oil and Gas said that by the middle of this year, the formation could be at or above 1.2 million barrels of oil a day.

There’s also the Eagle Ford.

Located in South Texas, analysts note that output at Eagle Ford could rise by 15,000 to 1.27 million bpd. However, there have been noticeable declines in activity due to rising interest in the Permian Basin, which we’ll discuss in a moment.

Production from the Eagle Ford stands around 1.4 million barrels per day. New wells in the region are producing roughly 1,500 barrels per day, which has helped make it the second largest oil-producing region in the United States.  Given the crisis over pipeline capacity that is brewing in the Permian Basin, Eagle Ford becomes even more valuable.

Another one of interest is the Powder River Basin (PRB).

Wyoming’s Powder River Basin appears on the verge of a major comeback as companies unveil plans to use horizontal drilling to further develop the region’s oil resources.

While it produces less than 200,000 barrels of oil equivalent per day, the basin made it presence know.  For example, EOG now has potential resources in the Powder of more than two billion BOE, which is more than 10 times the amount it had penciled in the previous quarter.

Even Anadarko Petroleum, Devon Energy and Chesapeake Energy have done deals or just announced big plans in the basin. In addition, the number of rigs operating in Wyoming has risen fourfold since bottoming out at just seven in the summer of 2016.

In short, we’re seeing good reason to get excited about the PRB.

PRB offers “optionality” at a time when the giant Permian Basin in West Texas and New Mexico is struggling to provide enough output takeaway capacity, S&P Global Platts Analytics analyst Matt Andre said, as noted by SP Global.

“While some of the other major plays are dealing with constraints and rising differentials, the [PRB] has benefited from favorable well economics along with the promise of expanding infrastructure (in the future),” he says.  “It’s not quite the Permian, but you don’t run into the oil price differential issues and land costs of the Permian, either.”

EOG Resources (EOG) for example is drilling in Wyoming’s Powder River Basin.

“The Powder River Basin is now ready to become a meaningful contributor to EOG’s future growth,” said Dave Trice, executive vice president for EOG’s exploration and production. “For 2019, we expect to increase our activity as we add infrastructure and prepare to bring the Powder into full development.”

The PRB is “prolific,” with almost a mile-deep column of pay and multiple targets, David Trice, EOG’s executive vice president for exploration and production, said during the company’s Q2 call.  EOG executives on the call unveiled two geological formations, the Mowry and the Niobrara, as viable within the PRB, notes SP Global.

Chesapeake Energy (CHK) likes what it sees, too.

In fact, in its second quarter report, it noted, it was “quickly establishing itself as the growth engine of the company.”  The company expects for its production in the area to increase to 38,000 BOE/d by the close of 2018.  From there, it could double.

Anadarko Petroleum (APC) is eyeing growth in the region.

The company established a core acreage position in Wyoming’s PBR and began an appraisal effort for the development.  “We believe we have another onshore oil opportunity in its southern portion,” Chief Executive Officer Al Walker said, as quoted by Reuters.

In fact, it acquired some 300,000 acres in the Powder River Basin at an average cost of less than $2,500 per acre. It said it was working on adding new leases to square up its acreage.

And then there’s Devon Energy (DVN).

In the Powder River, the company is currently targeting several Cretaceous oil objectives, including the Turner, Parkman, Teapot and Frontier formations. Recent drilling success in these formations has expanded Devon’s drilling inventory.

As the oil story heats up, these are just some of the stocks to keep on radar.

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