Crude Summit: Permian needs more infrastructure: Update

Adds comments on Permian inventory, Shell's output.

The Permian basin needs more infrastructure, particularly for moving natural gas and natural gas liquids, because production from the region continues to beat expectations, an executive from European major Shell said today.

"Although additional gathering facilities and pipelines have been constructed, more are needed to support the projected growth from the Permian," said Amir Gerges, Shell's vice president for Permian assets, at the Argus Americas Crude Summit in Houston, Texas. "The flaring and emissions in the Permian have become famous and it is not something we would like to be recognized for."

The Permian basin in Texas and New Mexico has among the lowest breakeven prices of US fields, making it resilient to crude prices swings, Gerges said, but it is also important for the basin to be environmentally resilient with the lowest carbon intensity. That's becoming key as banks and lenders pressure producers to reduce their carbon footprints.

The Permian basin has 30 years of Tier I inventory, Gerges said, highlighting the region's long-term potential. Shell, which saw output from the region touch 250,000 b/d of oil equivalent (boe/d) in December, plans to invest about $3bn in shale assets over the next five years. It sees shale as a business that complements its conventional operations that take longer to build with a shorter payback time. The company's core operations are in the Delaware portion of the basin.

Elaborating on the short cycle nature of the shale business, Gerges said, it takes about 140 days at Shell from the time a geologist expresses interest in drilling a three- to four-well pad to the time the company starts seeing cash coming in from the output from those wells. Such a short turnaround gives the company the flexibility to ramp production up or down depending on price swings.

The US shale boom was driven at first by smaller producers, with over 300 operators in the Permian alone. These companies were lean and nimble, with the flexibility to quickly shift operations from one area to another and not burdened with corporate overhead, he said. But they could be vulnerable to price swings without financial resilience and faced challenges in taking a long-term view on operating plans.

The investor sentiment on the US unconventional industry has changed, with a greater focus on returns, while operators face well productivity and spacing issues amid limited access to capital.

Against that backdrop, the profile of producers has shifted, with the Permian operations being increasingly dominated by the majors and large independent operators. With stronger balance sheets, they are able to take a longer view on operations. Majors like Shell are able to bring more technology and integration, Gerges said.

The next breakthrough to follow hydraulic fracturing will be the use of data to understand and optimize oil drilling plans and strategy. All companies are trying to win on how to use data to arrive at the right well spacing to deal with the drop in pressure between wells and other subsurface challenges, Gerges said.

"Whether the answer is consolidation, joint ventures, infrastructure or investments, creative contracts or a combination, the answers will come," Gerges said.

By Manash Goswami