Big Oil is racing to pump all the oil out of Texas

Shale exec: US will surpass Russia in oil production

The oil industry is shelling out billions of dollars in a series of acquisitions in the Permian Basin, the hottest oilfield in the world.

The latest deal came on Tuesday when Diamondback Energy agreed to purchase shale producer Energen for $9.2 billion, forming one of the largest players in the Permian. Late last month, BP ( inked a $10.5 billion deal to buy oil assets in Texas. It was BP’s biggest acquisition in two decades and first major investment in the United States since the Deepwater Horizon disaster in 2010. And Concho Resources recently completed a $9.5 billion purchase of RSP Permian that created the largest shale producer in the Permian.

The rush of deals underscores how eager companies are to get a foothold in the region. Rapid technological advances have dramatically slashed the cost to frack in the Permian. Production is spiking so much that Texas is on track to surpass Iran and Iraq, both OPEC members. That would make Texas No. 3 in the world if it were a country. “It’s the most desired region in the United States, if not globally,” said Michael Tran, director of global energy strategy at RBC Capital Markets.

texas oil chart

Permian could rival legendary Saudi field

RBC estimates that Permian production will more than double over the next seven to 10 years, to about 6.5 million barrels per day. That’s more than the entire United States produced in early 2012. “From a price perspective, the Permian Basin is extremely attractive,” Tran said. “Nobody doubts the rock.” The Permian boasts unique geology that allows oil companies to drill more than one layer of the earth at the same time. Wells can be profitable below $40 a barrel. That’s well below today’s price of about $65 a barrel. And some executives believe the amount of Permian oil rivals Saudi Arabia’s legendary Ghawar Field, the world’s largest conventional oilfield.

permian basin chart

But major obstacles loom in the booming Permian Basin, at least in the short run. Because of hyper growth, the Permian is quickly running out of pipelines to move oil out of the region.

“The pipeline constraints are real, but they are transitory,” said Vincent Piazza, senior energy analyst at Bloomberg Intelligence. “The infrastructure has had a difficult time keeping up with the explosive growth.

More pipelines are coming, but they will take time. Clay Seigle, managing director of oil at research firm Genscape, warned of “significant challenges” for transporting oil out of the Permian until the second half of next year. At the same time, Permian producers are feeling sticker shock as prices spike for talent, supplies and services. Oil executives are betting they can maximize their chances of success by working together. The recent deals “signal a clear shift in the US shale industry towards consolidation as players seek operational and capital efficiencies,” analysts at research firm Rystad Energy wrote in a report on Wednesday.