GlobalData’s latest report, Permian Basin in the US, 2020 – Oil and Gas Shale Market Analysis and Outlook to 2022, says that the Permian Basin is expected to observe average crude and condensate production of approximately 4.3 million barrels per day (mmbd) in 2020, an annual decline of 5% from 2019.
In 2020, the Covid–19 pandemic and the decline in crude prices have severely impacted the drilling activity in the Permian Basin region. The number of active rigs in the region dropped to 180 in May compared to 402 in January. The number of new permit applications during this period also fell significantly to 1,416. In May, only 378 permits were issued in the Permian Basin compared to 1,084 during the same time last year. In June, the number of new permits further dropped to 357.
The fall in oil prices also had a bearing on the Permian production. For the first time since 2019, monthly production from the Permian Basin fell below 4.0 mmbd in May. Overall, crude oil and natural gas production in the Permian Basin declined by 13% and 9% respectively from January to August.
Permian Basin, Covid-19 Impact on Production, 2020
According to GlobalData estimates, gross production for crude oil and condensate in the Permian Basin is expected to rise marginally to 4.4 mmbd in 2021 against 4.3 mmbd this year. A smaller number of active rigs, series of CapEx cuts, depressed crude prices, and uncertain demand recovery in the near-term are likely to be the factors, impacting the production growth.
As a result of the Covid–19 led crude price crash, several operators announced reductions to their 2020 Permian CapEx, collectively amounting to approximately $18.4bn. Occidental Petroleum, one of the major producers in the Permian Basin, announced that it will reduce its Permian CapEx by 19%. It has also decided to operate only one rig in this basin for the rest of this year. This is significantly lower than the 22 rigs Occidental Petroleum operated around the time of its acquisition of Anadarko Petroleum in May 2019. Chevron, another major operator in this play, reduced its planned annual CapEx allocated to the Permian Basin by 53% to $1.5bn. The pandemic has forced some operators such as Rosehill Resources to file for Chapter 11 bankruptcy. It has also disrupted the restructuring plans of operators such as EP Energy that is looking to exit from bankruptcy.