At the end of July, Bakken and Eagle Ford had 478 rigs combined. What would you say about a field that has 500 rigs working?

I’d say that’s great! Cool!

Where would that be?, I hear you ask. Try the Permian Basin. You know, that ancient field that is in perpetual decline, which just ‘proves’ the peak oil idea that there’s no more oil to be found.

Eric Fox at Motley Fool describes The Resurrection of the Permian Basin. He says the rig count in second quarter of ’12 passed the 500 mark. That is more rigs that are working in Bakken and Eagle Ford combined.

Production growth

This estimate is for production in the field to increase about 330,000 bopd in the next 4 years:

Bentek, an energy industry consultant, expects oil production from the Permian Basin to increase rapidly for the next five years and reach 1.62 million barrels per day by 2016. The Permian Basin, located in parts of west Texas and eastern New Mexico, currently produces 1.29 million barrels of oil per day.

A number of operators are putting serious dollars into drilling in the play.

Possible returns

I enjoy the occasional glimpses I find of the economics of one well. Check this out:

Apache estimates that a typical vertical well drilled into one of these formations will cost an average of $2 million to drill and complete and have an estimated ultimate recovery (EUR) of 144,000 barrels of oil equivalent (BOE). If the company is correct on these assumptions, it will earn a 27% rate of return for these vertical wells.

Only $2M to drill? Very attractive compared to $8M or $10M I’m reading about in Bakken. On a risk-, complexity- and time-adjusted basis seems to me that would make Permian Basin vertical wells more appealing than Bakken horizontal wells.

Can we finally bury the “Peak Oil” foolishness?

This is very mature field. Yet there are lots of rigs working and production could increase by something in the range of 25% over the next 4 years.

The Permian Basin was once derided as a mature basin undergoing a perpetual decline in an energy world dominated by large national oil companies dangling international projects to desperate western oil companies. This conventional wisdom has been exposed as nonsense by an industry using technology to unlock oil and gas resources thought to be uneconomic.

New technology and human creativity will probably increase production by 25% in an extremely mature field.

That oil has been there millions of years. More to the point, the extra oil that will be coming out of the ground has been there every day that Permian Basin has been called a mature field. Its been there all this time.

The wizards that get energy from rocks thousands of feet under the ground have figured out something new. And we get more oil.

Very cool.

(Hat tip: Million Dollar Way blog)

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