Texas is once again making life difficult for OPEC.
As CNN Money reports, the Permian Basin of Texas and New Mexico has emerged as the new poster boy of the U.S. shale oil revolution. Land prices in the Permian have skyrocketed, drilling activity has tripled since last year and production there is poised to soar despite cheap oil prices.
Some are even predicting this hotbed of shale activity could eventually surpass the colossal Ghawar field in Saudi Arabia as the world’s biggest oilfield.
The Permian’s rise on the global stage couldn’t come at a worse time for OPEC, which just last November cobbled together a delicate deal to handle the oil glut by cutting production.
The latest resurgence of U.S. shale oil output from the basin has caught OPEC off guard. Its strength even prompted U.S. government experts to recently predict that American oil production could soar to a new record by 2018.
“The Permian Basin is definitely the thorn in the side of the OPEC production deal,” says Matt Smith, director of commodity research at ClipperData.
The key is that the unique geology of the Permian allows frackers to hit multiple layers of oil as they drill into the ground. That’s what sets the Permian apart from other major oilfields, making it lucrative to drill there even at today’s sub-$50 prices.
The proof is in the skyrocketing cost of land in the Permian Basin, which mostly lies in West Texas but also has a foothold in New Mexico. Oil explorers have paid as much as $60,000 an acre in the Permian Basin, according to Wood Mackenzie. That’s a stunning 50 times higher than the price four years ago.
