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Texas producers face big Permian opportunities, threats from activists

Texas oil and gas producers have a tremendous opportunity to expand their businesses but are also confronted by an existential threat from organized groups that want to thwart energy production and "keep it in the ground," according to speakers at the Texas Independent Producers and Royalty Owners meeting.

Largely driven by production in the Permian Basin of West Texas, the state's oil and gas production in recent years has been responsible for about 1% growth in U.S. GDP, TIPRO Chairman Allen Gilmer said March 26.

"The Permian Basin contains 400-plus years of economic resources at current production rates," said Gilmer, the executive chairman and co-founder of DrillingInfo.

Boasting multiple oil- and gas-bearing geological zones, the 75,000-square-mile basin is able to meet 50% of global demand growth of between 1.1 million and 1.2 million barrels of oil per year, he said.

In terms of locations to be drilled, given its multiple unconventional plays, Gilmer estimated that to date, the industry has drilled only about 3% of potential locations.

With strengthening crude oil prices and using big data analytics, Permian producers are continuously working to improve their drilling development strategies to extract the largest volumes of hydrocarbons from the rocks at lower costs. "At $65 [per barrel], a lot of things make economic sense in the Permian Basin," he said.

Threat to producers

But the growing power and sophistication of anti-energy-industry activists threaten to stymie the Texas oil and gas industry's potential to expand, said Travis Moran, director of operations for Welund North America.

Moran, who has 26 years of experience in law enforcement and security, pointed to the impact that sometimes extreme environmental protests have had on several gas pipelines in the Northeast. The cost of delays to the progress of the Atlantic Coast pipeline has swelled to $1.5 billion, he said, while challenges to the Mountain Valley pipeline have caused delays of up to $50 million every month.

Anti-industry activism has included effective and lengthy legal challenges to the pipeline permitting process and more pernicious — sometimes illegal — activities, such as vandalizing pipelines and railroad tracks.

The more hardcore activists use fundraising campaigns and social media to gain sympathy and financial support from less radical protesters who might oppose a single project based on more localized environmental concerns, he said. "They will paint you as the enemy," Moran told the crowd, comprising mostly representatives of the exploration and production industry.

The key to beating the industry opponents is "understanding your adversary," he said. "If you don't know who they are, you can't plan for fighting them."

Risk management

Moran counseled against heavy-handed or questionable legal tactics for battling drilling opponents, saying such methods often are counterproductive and result in more legal problems and bad publicity for energy companies.

Rather, he said, companies should have a proactive strategy for dealing with the threat of anti-industry activists, in the same way a company would plan for dealing with natural disasters. All aspects of a company — from its legal team to upper management, operations and corporate relations arms — need to become involved.

"You all need to be on the same page; if not, you're going to end up in trouble," Moran said.

Jim Magill is a reporter for S&P Global Platts, which like S&P Global Market Intelligence is owned by S&P Global Ratings Inc.