The Jaw-Dropping Potential in This American Oil Patch Could Change the World

Pioneer Natural Resources' recent estimate of the Permian Basin would make it the largest oil find ever.

May 24, 2014 at 3:45PM

Permain Basin Pump Jack Dvn

It may not look like much, but this might be the biggest oil field in the world (Source: Devon Energy Media Resources).

The pride and joy of Saudi Arabia's oil industry has been the Ghawar oil field, which has been recognized as the largest in the world ever since its discovery in 1948. That is, perhaps, until now. A shale oil formation deep beneath the plains of West Texas has been sitting right under our noses for years, and Pioneer Natural Resources (NYSE:PXD) estimates that it could usurp the Ghawar field's 60-year reign. Let's look at what Pioneer has discovered, and what this find could mean for producers with heavy investments in the Permian, including Pioneer, Occidental Petroleum (NYSE:OXY), EOG Resources (NYSE:EOG), and Devon Energy (NYSE:DVN).

Hiding in plain view
By the time the Ghawar field was discovered, commercial oil production had been taking place in the Permian Basin in Texas for more than 25 years. Estimates of the Permian's reserves were somewhere in the 10 billion-12 billion barrel range. That's nothing to scoff at, but it certainly didn't come close to the 71 billion barrels in that single formation under the Saudi desert. Apparently, those oilmen simply didn't look hard enough, because they missed the rest of the oil in the Permian.

All 75 billion barrels of it.


Source: Pioneer Natural Resources Investor Presentation.

To be fair to those wildcatters of old, they didn't know that oil trapped in shale would someday be commercially extractable. Now that hydraulic fracturing has made it possible, we are discovering increasing amounts of oil in the Permian. Pioneer Natural Resources -- one of the most prominent landholders in West Texas -- estimates that the recoverable resources in the field's different shale layers could make it the world's largest single source of recoverable oil ever found. 

This isn't just a lot of oil. This is a "completely change the dynamics of global production" amount of oil. This is an "enough to supply all of America by itself for more than a decade" amount of oil. If Pioneer's estimates are accurate, and this resource can be de-risked to be considered proved reserves, the U.S. could triple its proved reserves and vault from No. 11 in global reserves to sixth, right behind Iraq. Then there's the really crazy part of all this. Look at the last line of that slide above: Pioneer didn't even include several other potential shale formations that are found in the Permian.

Getting more bang from a previously spent buck
The Permian is not a newly discovered formation that could be subject to a land-grab rush like we saw five to 10 years ago. Most of the acreage in the region is already claimed by the players noted above, possibly placing these companies in an absolutely amazing growth position for the next several years. The potential of the Permian Basin is enough to profoundly impact the total reserves on the books for all four companies.

Company Proved Reserves (millions of barrels) Net Acreage in Permian Basin
Pioneer Natural Resources 845 717,000
Devon Energy 2,963 1,300,000
EOG Resources 2,119 413,000
Occidental Petroleum 3,483 1,900,000

Source: Company 10-Ks via

What a Fool believes
So what exactly does this mean for these companies? It's hard to say exactly because geologic formations aren't uniform. Pioneer believes that some of its acreage encompasses up to nine layers of technically extractable resources, but its peers might not find corresponding resources. As more and more data are collected from the Wolfcamp and Spraberry shale layers, we will get a much clearer picture for each company individually. 

Bottom line, though, there is a monumental potential in the Permian Basin that has yet to be accessed. Pioneer, Devon, EOG, and Occidental all have fantastic operations in the region today. Depending on how shale technology advances and the price of oil, these companies could be sitting on some of the most lucrative oil real estate in the world, which further solidifies their places among the best investments in the American shale boom today.

Get a piece of that 75 billion barrels yourself while the IRS gives you a free pass
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Tyler Crowe has no position in any stocks mentioned. You can follow them on Twitter @TMFEnergy and @TylerCroweFool, respectively.

The Motley Fool owns shares of Devon Energy and EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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