Is US shale oil back in black?

US shale oil is attracting billions of investment dollars despite recently emerging from the largest boom-bust in the commodity’s history. For traditional oil projects, the economics remain challenging, and risks loom large. However, US shale producers can quickly add resources with a fraction of the risk, but one US unconventional basin stands above the rest.

Why is Permian (an oil and natural gas geologic basin in southwestern US ) shale outperforming oil and outproducing other shale basins? Permian shale producers benefit from the region’s unique geology and well-established infrastructure. The Permian Basin has several stacked layers of oil due to multiple periods of thriving carbon-based life forms and rising and falling sea levels, geological prerequisites for oil creation. Additionally, these pay zones have risen to the surface and become outcroppings, dramatically increasing our knowledge of their production potential.

For many years, the Permian Basin functioned as a conventional oil field. Now, shale provides additional, meaningful life for this basin. Since shale uses similar services as conventional drilling, the necessary infrastructure is already in place for drilling and extracting, allowing companies to quickly and efficiently increase production.

The combination of geography and infrastructure makes the Permian Basin a unique shale play and strategically important to the portfolios of energy producers. Permian oil rigs are on the rise, while rig counts in Eagle Ford and Bakken Basins are plateauing. We expect other plays to recover soon, but investment dollars will pile up higher in West Texas. Despite a modest premium to peers, we believe the Permian Basin represents enormous value with multiple pay zones driving many years of growth and infrastructure in place to develop it.

Robin Wehbé – The Boston Company, a BNY Mellon Company

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