Watch Out, Saudi-Arabia. Texas is Back!

Not even the West Texas wind can compete with the deep hum of the oil rig. Its white and red pole punctures the pale blue sky. The platform is surrounded by trucks and containers. A giant metal rack holds pieces of pipe, several hundred of them. They will be used to frac’ the well and to transport the oil to the surface from more than 10,000 feet underground.

The name of this new well is UnivHope 1810. The land belongs to the University of Texas. Hope is the name of a daughter of a geologists who works for Henry Resources, the company that leased the mineral rights to drill for oil.

Listen to the company’s production manager Blake Braun explain how a well is drilled:

The world runs on oil – and as a reporter I had written many articles about its geostrategic and economic significance – as well as on its detrimental impact on the environment. Last year, I learnt about the history of oil by researching a story about the Rockefellers.

But I had never seen how oil is actually produced until I contributed to this Capital story about a global oil market out of balance. More than anything else, the shale revolution in the U.S. is what has turned this market upside down.

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Blake Braun explains the oil production © 2015 Brent Humphreys

The Permian Basin in Western Texas has been at the center of this revolution – and so has Jim Henry, the 80-year-old founder of Henry Resources, an independent oil producer based in Midland. Henry, an energetic and agile senior, drove his Tesla to the interview in his offices. He enjoys the acceleration, he told me. But for him the Tesla is also a reminder that a future in which humanity will be less dependent on oil for fuel is a possibility.

Midland’s golden days were in the early 1980s – the time when TV viewers around the world marveled at Texas’ oil riches watching “Dallas.” But the region hit the doldrums in the late 1980s – and by the late 1990s, no one believed that there was a future for the region whose oil reserves seemed to be depleted.

This changed when Henry took a chance in 2003 – and decided to use a new technology to access the tight shale formations that lay underneath the plays his company had previously drilled. “We have more reserves here than any place in the U.S. – and now we are learning how to get it out,” he said. “The future of the Permian Basin looks really good.”

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Jim Henry with a hand-drawn chart of oil prices over the decades © 2015 Sabine Muscat

Hydraulic fracturing – frac’ing – is a technology by which a mix of water, sand and chemicals is blasted down a well with high pressure to break the fossils out of the stone. Before the early 2000s, it had not been used on tight shale formations.

Let Blake Braun explain what happens when a well is frac’ed:

The shale boom in the U.S. led to an increase in production. Jimmy Davis, operator of Fasken Oil and Ranch, admitted that overcapacities in the U.S. were partially responsible for the dramatic drop in global oil prices late last year: “We were a little high on the production numbers and the world is trying to figure out how much it needs.”

The times in which leading Opec member Saudi-Arabia was the only swing producer in a position to influence oil prices are over. The U.S. shale industry is a serious competitor and Saudi-Arabia is not ready to give up market share by cutting its production.

Producers in the Permian Basin are used to boom and bust cycles. They are always preparing for the next slowdown – and they don’t waste time in a bust. Both Henry Resources and Fasken Oil and Ranch reduced the number of drilling rigs they leased and operated. They wait for the service companies to drop their prices before taking up new projects. Right now, the Permian Basin is the only shale region in the U.S. where at least the production per well is still rising.

The biggest part of the production costs is the drilling and frac’ing of  a well which can cost as much as $2.5 million. Once the well is drilled, the pumpjack does the rest of the work. The nodding horseheads are a fixed part of the landscape in the Permian Basin – and will be for a long time to come.

In this recording, Blake Braun describes how the pumpjacks bring the oil to the surface:

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