Oil production in the Permian Basin could rebound to near-record levels by the end of 2021, and a surge in takeaway capacity means producers will have no trouble moving volumes out of the region.
According to a pair of new reports, the largest-producing region in the U.S. is in relatively good shape despite a 2020 that was painful for many independent oil and gas companies. In its latest "Drilling Productivity Report," the U.S. Energy Information Administration projected shale oil production of nearly 4.24 million barrels per day for December 2020, a number RBN Energy LLC analyst Jason Ferguson said could be topped in January as an upward climb begins. Ferguson said production could reach 4.4 million b/d in January, about 300,000 b/d below the same period in 2020, but signs point to production increasing as 2021 continues.
"Oil volumes are set to rebound in the months ahead," he said. "We see Permian oil production hitting 4.7 [million b/d] by the end of this year, near its record levels from early 2020."
Production increases should continue into 2022, Ferguson said, with steady gains leading to daily production of approximately 5 million b/d by the end of 2022.
Thanks to a wave of capacity additions since the second half of 2019, there will be sufficient pipeline capacity to handle those barrels. In a Jan. 7 update, CreditSights said the basin now has pipeline takeaway of 6.4 million b/d, well above projected volumes into 2023.
"This compares to current production outlooks for [approximately] 4.5 million b/d in a $45 crude outlook and [approximately] 6 million b/d in a $55-$60 outlook," CreditSights said.
Takeaway capacity will increase to approximately 7.8 million b/d when the Wink-to-Webster pipeline, which will carry Permian volumes to the Gulf Coast, is completed. That project is a joint venture of Exxon Mobil Corp., Plains All American Pipeline LP, MPLX LP and others.
Even if higher prices cause a production surge, the once-constrained basin will likely be oversupplied with pipeline capacity "for the foreseeable future," CreditSights said.
Utilization of Permian to Gulf Coast pipelines, which have become the biggest money-maker thanks to crude oil exports, will drop from approximately 90% at the end of 2019 to about 65% this year. Even in a scenario where prices remain flat at $60, CreditSights believes that utilization in the basin will still be at only approximately 80% by 2025. Overall Permian pipeline utilization is expected to fall to roughly 57% in 2021.
The company that could feel the greatest sting from the oversupply is Plains All American, which CreditSights said owns approximately 20% of the Permian pipeline takeaway capacity. Enterprise Products Partners LP follows at about 16%, followed by Energy Transfer LP at 12%.
