Infrastructure capacity gives new meaning to 'tight oil'

Dallas Morning News:

Texas oil production has nearly doubled in the last two years. The latest reporting data from the U.S. Energy Information Administration shows production averaged 2.14 million barrels a day in November — an increase of 900,000 barrels a day from November 2010, worth about $32 billion a year.

The infrastructure to support this rapid increase is straining to keep pace. Production in the Permian Basin of West Texas is about 1.3 million barrels a day, while the pipeline capacity from the area is 1.35 million.

Texas oil production has increased rapidly because of the success of hydraulic fracturing and horizontal drilling. North Dakota, now the nation’s second-biggest producer, is the only state that comes close to rivaling the success of Texas oil producers.

North Dakota’s oil production averaged 731,000 barrels a day in November, according to the EIA. New Mexico’s production has increased rapidly but was at only 247,000 barrels a day in November. Oklahoma was up about 10 percent, to 268,000 barrels a day.

Production in Louisiana, California and Alaska has been flat or falling.

The speed of this transformation has left Texas oil producers struggling to get wells connected to gathering systems to handle the natural gas produced alongside oil. The price discrepancy between the two fuels strongly favors oil over gas. As a result, gas flaring permits issued by the Texas Railroad Commission have gone up sixfold in the last two years, to 1,963 in 2012.

Oil prices — and oil prospects — are so strong that Texas oil companies are drilling as fast as they can in both the Permian Basin and the Eagle Ford formation near San Antonio.

Irving-based Pioneer Natural Resources Co. spent $2.5 billion drilling wells last year. Last week, the company announced a $1.7 billion joint venture with Sinochem, a state-owned Chinese oil company, to help pay for more drilling in the coming months.

Pioneer hopes to prove up oil estimates in the southern Permian Basin that expanded the company’s reserves last year from 1.1 billion barrels to potentially 6.7 billion barrels.

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There is much more.

The Cline formation in West Texas has the potential to be much larger than Eagle Ford and the Permian Basin production.  It will add even more pressure on infrastructure.  Gov. Perry said he wants the legislature to address the infrastructure issue in a recent conference call with bloggers and reporters.  Pipeline companies are going to have to add capacity to deal with the additional production since we are already near max capacity with current production.