Horizontal drilling has overtaken vertical drilling in the legacy Permian Basin, as independent oil producers leverage high crude oil prices and modern technology to access 75 billion barrels of crude oil previously considered uneconomic for commercial extraction. In line with this, long-term investors should find it hard to ignore the ambitious growth plans from Pioneer Resources (NYSE:PXD), EOG Resources (NYSE:EOG), Concho Resources (NYSE:CXO), and Occidental Petroleum (NYSE:OXY), as these operators allocate capital to aggressively drill the Permian's multiple pay zones and thick, oily reservoirs. Over the next five years, these companies plan to grow oil production volumes substantially by drilling the lucrative Wolfcamp and Bone Spring shale formations.
According to energy research firm Wood Mackenzie, production volumes in the Permian grew a whopping 119% last year, to 375,000 barrels of oil equivalent per day, or Boe/d, from horizontal wells. On the other hand, output from vertical wells increased just 2%. Additionally, 55% of total capital spending in the Permian was directed to development of horizontal wells, the highest ever.
What sets apart the Permian Basin from other shale plays, such as the Eagle Ford and the Bakken, is the presence of multiple stacked reservoirs of oil. These multiple landing zones in the Midland and Delaware sub-basins mean that from the same pad site, various laterals can be drilled horizontally at various depths through six different stratas.
The following slideshow dissects the Permian basin, and shows why energy investors may be compelled to invest in companies operating here.