FORT WORTH, Texas—A new administration in the White House—one with a favorable attitude toward the energy sector and business in general—is likely to lead to wide-ranging expansions in the oil and gas industry even as production escalates in its most popular reservoir, according to Tudor, Pickering, Holt & Co. (TPH).
But despite the commodity markets’ sluggish recovery, the U.S. has steadily climbed toward record oil production levels, thanks in large part to the unparalleled success of the Permian Basin.
“The fear is how production growth will impact the market,” said Dave Pursell, managing director and head of macro research at TPH, during Hart Energy’s recent DUG Permian Conference. “The new administration has fewer rules. You can get stuff done and get it done quicker.”
Pursell attributed the industry’s growth potential to President Donald Trump’s recent budget proposal that would substantially downsize the Environmental Protection Agency while also rolling back many of his predecessor’s environmental policies—policies that put constraints on the energy industry. Among the most significant efforts of the Trump administration, at least in the view of Pursell, are those to develop and support pipeline infrastructure.
Pursell explained that the Permian Basin is currently “overpiped,” but that midstream companies will soon install enough pipeline to satisfy increasing levels of production.
According to TPH data, the existing pipeline in the Permian Basin has the capacity for about 2.75 million barrels per day (MMbbl/d), while Permian players are producing about 2 MMbbl/d. But production in the basin is expected to substantially increase during the next three years.
TPH predicts Permian oil production to grow from about 2 MMbbl/d in first-quarter 2017 to more than 3.5 MMbbl/d by fourth-quarter 2020, an increase of 75% in three years, and to a point when Pursell says the region could be close to being underpiped. That potential, however, could be resolved by more lax federal policies on piping.
“You can build pipeline in Texas, and with the current administration giving it a boost, [being underpiped] is not going to be a problem,” Pursell said.
Among the pipeline projects targeted for the Permian are Navigator Energy Services LLC’s Big Spring Gateway, Enterprise Products Partners LP’s (NYSE: EPD) Midland-to-Sealy line and the Trans-Pecos’ West Texas project by Energy Transfer Partner LP (NYSE: ETP).
“Current policies will allow these projects to come to fruition,” Pursell said.
Further, the Permian is seeing the most substantial investments and production growth in the country, far outpacing the Eagle Ford and Bakken in its economic recovery efforts. As an example, Pursell referenced the number of active rigs in the Permian steadily increasing since late 2016, while rig counts in the Eagle Ford and Bakken have remained relatively low.
According to the latest Baker Hughes (NYSE: BHI) rig count, 331 rigs are currently operating in the Permian, up from 142 one year ago, while the Bakken has 42 active rigs and Eagle Ford has 72.
“Companies in the Eagle Ford have redirected a lot of money into the Permian Basin,” Pursell said. “So, follow the money. Watch where E&Ps are spending their money.”
However, Pursell said the other basins could be in store for a recovery next year. According to TPH, the Eagle Ford, Bakken and Niobrara could combine with the Permian and Scoop/Stack to produce 1.2 MMbbl/d by 2018.
Also contributing to domestic industry growth is a potential plateauing of output from some OPEC countries, Pursell said. TPH expects production increases beginning next year from Saudi Arabia, Iran and Iraq, while production from the rest of OPEC begins to flatten, and even taper off beginning in 2019.
“For instance, we thought Libya was going to produce 1 MMbbl/d. That doesn’t feel like a good assumption today,” Pursell said.
Brian Walzel can be reached at firstname.lastname@example.org.