The nation still needs the Basin

Oil and gas production By Julie Breaux Odessa American

Despite a scarcity of rationed materials, limited pipeline capacity and a dearth of seasoned workers, Texas and the Permian Basin supplied about 2 million barrels of crude oil a day — about a fourth of total global production — at the height of World War II. Today, even with the spigots wide open, the state and region produce slightly less than 1 million barrels of crude each day. By comparison, Saudi Arabia’s daily production is roughly 9 million barrels. Does that mean, then, that the industry’s efforts here are less significant now than they were in 1944-45? Absolutely not, says Bob Trentham, a geologist and director of energy research at the Center for Energy and Economic Diversification in Midland. “We’re important not because we can increase production in the short-term, because we can’t,” Trentham said. “However, we are a stable, local source of hydrocarbons. We don’t have to depend on shipping overseas, unstable governments, OPEC price wars. We don’t have to depend on any of those things for our oil.” Kirk Edwards, a petroleum engineer and president of MacLondon Royalty Co. of Odessa, has been involved in oil and gas production in West Texas since the 1980s. Edwards said the age of the Permian Basin may be one of its greatest assets, especially in these tense and troubling times. “The great thing about West Texas production is we are a mature province, which means we have a very consistent supply. We’re kind of like the tortoise to the hare. We may be not fast but we keep on keeping on.” In 1944-45, producers put 2.3 million barrels of Permian Basin crude on the market each day, an increase of about 1 million barrels in 1941-42, according to Texas Railroad Commission records. “The only area that contributed more oil to the war effort was the giant East Texas field,” said Roger Olien, the author of numerous books on the history of Texas’ oil and gas industry and University of Texas of the Permian Basin history professor. “Our major problem as far as doing more was limited pipeline capacity out here and a critical shortage of materials, like tubular goods.” Production was also hampered by federal regulations that dictated the distance allowed between wells, Olien said. And WWII siphoned off experienced workers who enlisted in the war, leaving the inexperienced young or the experienced old — the semi-retired or retired — to fill the void, he said. “They made good workers,” Olien said. “But they weren’t nearly as effective as the usual roughnecks and roustabouts.” Since then, the vast Permian Basin reservoir has been steadily declining, from a peak of about 1.3 million barrels of oil per day in 1971-72 to about 800,000 today. Still, this region of Texas is home to the largest collection of producing reservoirs in the Lower 48, Olien said. And even though the industry’s workforce isn’t what it was in the 1940s — the 1998-98 price crash forced thousands of veteran personnel into other fields of work — West Texas is a hub for some of the most innovative thinking regarding all phases of energy production, he said. Olien calls it “shop-floor technology.” “The only thing you an count on in the oil industry is kind of a continuous forward roll of next-step technology,” Olien said. “No giant leaps. But the contractors in the industry and the equipment suppliers, just left to their own devices, will make improvements in what they do, and it makes it a very dynamic industry. The technology is always alive.” Roll all those factors in with the increasing potential for serious disruptions in supply — whether on order of a despot or by virtue of some production, refining or distribution hiccup that sends energy prices soaring — this oil-and-gas producing region of the world matters a great deal right now, says Bill Patterson, ConocoPhillips’ manager of operations in the Permian Basin and New Mexico. “I think the deal is the Permian Basin is a very good, secure source of energy for both oil and gas for the entire United States,” Patterson said. “And it becomes even more significant if there are disruptions internationally.” While production has been dropping steadily since the early ‘70s, there is still a “tremendous amount” of oil left in West Texas, Edwards said. “But it’s harder and more expensive to find.” Even more oil could be tapped through various enhanced recovery methods, including infill drilling, which drains an oilfield faster than it otherwise could be by adding more wells within existing production, Edwards said. Trentham had no estimate of how much more the Permian Basin has to give but said only 20 to 25 percent has been produced since the Santa Rita No. 1 came in on May 29, 1923, proving the region had oil. Trentham said the amount of oil that could be produced depends on the free market. In other words, there might not be much $20 oil left in the ground but plenty of $40 oil. “We’ll never get all of it, but another 10 percent would be a tremendous amount of oil. We’re talking billions of barrels.” Jim Henry thinks the world will need some of those billions of barrels sooner than later. Henry, chairman and chief executive of the independent oil company Henry Petroleum of Midland, said he didn’t doubt the major oil-producing nations can compensate for any short-term supply disruptions related to the Iraqi war and to the petroleum workers strike in Venezuela that cut production to about 1.5 million barrels per day. Iraq was producing about 2.3 million barrels a day, of which 1.3 million was marked for export to the United States. But Iraqi exports ceased in advance of the U.S. invasion, Henry said. Add to that the fact that crude oil inventories are at record lows, and Henry is concerned about a possible 1.5 million-barrel deficit this fall, when demand will begin to rise. If the world’s producing nations aren’t able to make up that deficit by then, Henry foresees trouble. “We’re producing flat out because of the reduction in production in Iraq and Venezuela, and it’ll take a while to get that production up again,” Henry said. Even if Iraq President Saddam Hussein were to destroy all the country’s oil wells, Saudi Arabia could make up for the production loss, Henry said. “But what you’re’ going to see come fall, when we need that extra storage, it’s not going to be there,” Henry said. “Then you’ll see some problems.” And, as is the case in Texas, crude oil production in Saudi Arabia is nearing its peak, he said.