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April 2017 SEE Monthly Update

Permania

The title of this month’s SEE analysis, used by a recent conference speaker, accurately captures the white-hot level of continued oil producer interest in the Permian Basin, pictured above.

The US strike on Syria after Syria’s chemical gas attack on its citizens does not change the supply-balance equation except as a reminder of roiling Middle Eastern politics. Nonetheless, the follow-on will be important particularly if Iran or Russia gets more aggressively involved. And, the action reminds us about the United States’ improved global strategic position now that we import fewer barrels of oil while producing and exporting more oil and products. Also recall that after our own production our largest oil supplier is Canada, not Saudi Arabia.

Is the Permian the world’s biggest oilfield? Bigger than Saudi Arabia’s Ghawar? Bill Marko of Jeffries claims it is. What’s clear is drilling’s recovery from last year’s lows, with March’s crude oil and lease condensate of 9. 1 million barrels per day (MMBPD) just under the year-ago level of 9.2 million barrels per day. The Baker Hughes oil rig count has increased from 372 on March 25, 2016 to 652 on March 24, 2017. And while oil in storage in March was at historically high levels of 533 million barrels, natural gas in storage has eased off of year-ago levels by 16%, or 400 billion cubic feet, providing more price support than last year as we go into the spring shoulder season.

One drilling cost and operation receiving special attention is water: water transportation and handling, water for fracturing, and wastewater treating for both flowback and produced water. The lowest Permian ratio of water to oil mentioned was 1:1, typically, far more water than oil comes out of any given well. This is not just flowback water (return of the water that went into the well for fracturing), but also produced water, which is salty and contains lots of solids, requiring substantial treating. For more detail on new estimates of Permian acreage value, log in or subscribe.

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           Copyright 2017, Starks Energy Economics, LLC. This information may not be disclosed, copied or disseminated, in whole or in part, without the prior written permission of Starks Energy Economics, LLC. This communication is based on information which Starks Energy Economics, LLC believes is reliable. However, Starks Energy Economics, LLC does not represent or warrant its accuracy. This communication should not be considered as an offer or solicitation to buy or sell any securities.



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