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Cartoon For June

Production growth in the Permian Basin is slowing but still trending upwards. It's important to remember all of what we see today was actually drilled and frac'ed four to five months ago.

Best not let the trend be your friend; things have changed in the past five months. Liquids productivity for a typical Permian HZ well has declined 8% in the past 12 months (Goehring & Rozencwajg/Novi Labs) and wells in both sub-basins are getting gassier; over 50% of the revenue stream from a typical Wolfcamp well in the Permian is now gas related.

Associated gas and related natural gas liquids prices, however, are low from oversupply and make Permian HZ tight oil economics very marginal. IRR's are in the low single digits and drilling rigs are going back to the barn. A 30 rig decline in the Permian over the summer will take three to four months to see in the way of production declines, but they're coming.

We are now at sort of an inflection point for the Permian where less oil supply might equate to higher oil prices, but might not put Permian rigs back to work. The tight oil sector needs higher associated gas and NGL's prices more than it needs higher oil prices.

In the meantime driving season is upon us and OPEC just whacked another 1MM BOPD off its production, that on top of the previous 1 MM BOPD back in April. A 2.o MM BOPD cut in worldwide production, in the absence of a recession, WILL eventually make a difference. Its likely by 4Q23 oil prices will be increasing, along with gasoline and fuel oil.

Biden won't stand for that; the 2024 Presidential elections are just around the corner. He'll ask for, and receive from Congress, more withdrawals from the SPR and we'll be going below 300 MM BO. Watch.

While our country's oil savings account is being drained, tight oil exports FROM the Permian are approaching 5 MM BOPD, nearly 88% of total Permian HZ production.

OPEC + production cuts most certainly increase the likelihood that the SPR will not be re-filled. Does the KSA and its new oil import partner, China, understand that? Of course they do. Is the KSA worried higher oil prices will spur the Permian Basin into a new drilling frenzy? Nah. Those boys over there have computers, they know how much the Permian has left, and what it will cost. They're on a plan.

Last month the US exported a little south of 1 MM BO to...China. Some of that likely came for our own SPR. Incredible, uh? If this administration picks a fight with that country over Taiwan, China will be using American oil against Americans and our nation's military will likely have to borrow jet fuel from Southwest Airlines.

We're not energy independent in the US, we're energy illiterate.

Left, American Energy Security


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