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Arthur D. Little Analysis Finds Collaboration is Central to Unlocking Enormous Oil and Gas Potential of US Permian Basin

LONDON–(BUSINESS WIRE)–Arthur D. Little (ADL) today released analysis that highlights the vast
potential of shale oil & gas extraction across the US Permian basin.
Production in the area, which spans Texas and New Mexico, could reach
5.4 million barrels of oil equivalent (BOE) per day by 2023, putting it
ahead of every OPEC country except Saudi Arabia.

However, to achieve these ambitious targets the US shale industry will
have to dramatically change how it operates. Traditionally it has been
driven by independents, but to meet the $310 billion capital expense to
unlock the Permian’s reserves and drill 41,000 new wells, companies will
have to shift strategy and adopt new business models.

ADL sees four key issues that independents will need to focus on:

  • Build partnerships: Move away from current models of selling
    direct at the wellhead, instead creating demand-pull and long-term
    partnerships with refineries to guarantee steady cash flow
  • Command a price premium: Overcome the current discount of
    Permian prices against world benchmarks by investing in pipeline and
    export-shipping capacity, as well as adopting more sophisticated
    trading capabilities to reduce pricing differentials and guarantee
  • Increase operator collaboration: Fully exploiting the Permian
    is not possible with existing infrastructure. Operators will need to
    work together to build vital, non-competitive services such as
    trucking, roads, water usage, power, housing, school and hospitals, or
    face unsupportable operational costs
  • Feed the capital machine: Financing is the biggest challenge
    for independents and they will require creative new funding solutions
    to raise the estimated $310 billion required for Permian expansion

Bob Peterson, Partner and North America Energy Leader, ADL,
explains: “The rush to develop the Permian will drive a level of
activity not seen in the history of the oil and gas industry. Growing
production to exceed that of every oil-exporter bar Saudi Arabia and
Russia in just five years is an enormous challenge. To succeed,
independent oil producers will need to radically change how they
operate, increasing collaboration and creating new ecosystems to deliver
the necessary infrastructure and investment. In short, independents must
act in a much less independent manner if the Permian’s potential is to
be realized.”

The ADL analysis “Rethinking Independents” is available here: www.adl.com/PermianImpact


For Arthur D. Little
Cate Bonthuys
Tel: +44 7746546773
[email protected]