Permian Oil Holding Up, Despite Lack of Wells

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Written by Daniel Graeber for IIR News Intelligence (Sugar Land Texas)

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Summary

The Federal Reserve Bank of Dallas said Permian oil was holding up at around 6.7 million BBL/d. But even two years ago, there were concerns about a slowdown.

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New Wells in the Permian on the Decline

Crude oil production in the lucrative Permian Basin held steady during the fourth quarter of last year, even as the level of upstream activity declined, the Federal Reserve Bank of Dallas reported.

The Dallas Fed on Thursday reported that crude oil production in the Permian averaged 6.7 million barrels per day (BBL/d) over the three-month period ending December 31. That comes despite a downturn in drilling-related activity.

"The number of new wells drilled decreased 0.8 percent from the third quarter, and the number of active rigs decreased 2.1 percent over the same period," the bank reported.

Gains came as a result of improved efficiencies in the region. Operators are doing more with less by drilling multi-bore wells and using miles-long laterals. Federal data, meanwhile, show that rig activity in the region experienced a steady decline last year.

The U.S. Energy Information Administration (EIA) reported there were 302 active rigs in the Permian Basin during the first quarter of 2025. That level fell to 250 by the fourth quarter.

Data from Industrial Info show a total investment value of $7.2 billion in the Permian Basin, with Denver-based Ovintiv, a spinoff of Canadian energy company Encana, leading the way.

Lingering Concerns of a Slowdown

The Permian has accounted for most of the growth in U.S. crude oil production since 2022, though gains are diminishing. Even in 2024, Goldman Sachs was warning of a decline of output as the basin matures.

"Years of intense exploration and production have had an impact on the rock quality of the basin, leading to geological deformations that limit further improvements in the productivity of oil wells," the investment bank said at the time. "The most productive wells are also getting depleted."

The gas-to-oil ratio changes when a basin matures. That means heavier molecules associated with crude oil remain trapped in the sub-surface pores, while lighter molecules associated with natural gas escape to the production well.

The Dallas Fed said the regional wholesale price of natural gas, called Waha, is usually at a heavy discount to the national benchmark Henry Hub because gas production growth is typically a byproduct of crude oil production.

"When gas production approaches the physical limits of transportation and storage infrastructure, producers pay to have the natural gas removed to avoid shutting down oil production," the bank explained.

Federal data suggest more pipeline capacity could come onstream in the Permian in response to higher natural gas prices, however. Henry Hub is expected to average $4.31 per million British thermal units, up from last year's average of $3.53.

Federal data also show Permian crude oil production is expected to drop from an average of 6.62 million BBL/d this year to 6.58 million BBL/d in 2027. Gas production, meanwhile, increases from 29 billion cubic feet per day (Bcf/d) to 29.6 Bcf/d.

Elsewhere, the Dallas Fed found that the only sector to experience any meaningful declines in labor activity was education and health services. Mining, logging and construction showed a 1.1% annual increase through December.

Home prices, however, remain elevated.

"The median home sales price in the Permian Basin was $345,000 in December, 3.2 percent higher than the state figure," the Dallas Fed found.

By the Numbers

• 6.7 million BBL/d from Permian
• 29.6 Bcf/d in gas production next year marks an increase
• $4.31 Henry Hub could support drilling

Key Takeaways

• Even with a decline in upstream work, oil holding up
• The gas-to-oil ratio is changing as the Permian matures
• Employment holding up in shale-rich Texas

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About IIR News Intelligence
IIR News Intelligence is a trusted source of news for the industrial process and energy markets, powered by Industrial Info Resources' Global Market Intelligence (GMI).

About Industrial Info Resources
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 250,000 current and future projects worth $30.2 Trillion (USD).