(Bloomberg View) -- I spent the weekend in Austin at the University of Texas, where I drove past what is arguably the most important oil well in American history, the Santa Rita No. 1.
There are those who would bestow that title on the famous East Texas gusher at Spindletop, which spurred the rise of the oil industry in 1901. The Santa Rita No. 1 first hit oil 22 years later, after two arduous years of drilling, in Reagan County in West Texas. It proved that oil existed the Permian Basin, a 300-mile expanse stretching to southeastern New Mexico, and including Midland, Odessa and Fort Stockton in Texas, and Carlsbad, New Mexico. The Permian Basin quickly became the most important source of U.S. oil production.
Incredibly, that is as true today as it was in the Permian’s wildcatting heyday, which was roughly from the 1940s to the early 1970s. According to a new study by IHS Markit, a consulting and research firm, the Permian Basin today has between 60 billion and 70 billion barrels of recoverable oil, worth $3.3 trillion at current prices, as Bloomberg’s Joe Carroll noted in a story on Monday.
To put that in context, since 1923 more than 30 billion barrels of oil have been extracted from the Permian Basin. Yet according to IHS-Markit, it still contains more than twice as much recoverable oil as has been drilled over the last 94 years. Indeed, the greatest oil field of them all, the Ghawar field in Saudi Arabia, is estimated to have the same amount of recoverable oil—70 billion barrels—as the high end of IHS-Markit’s estimate.
Even veterans of the oil business are amazed. “How can we have been drilling in the Permian Basin for 100 years and then find out it has twice as much as we thought?” the energy magnate T. Boone Pickens has been known to say. Of course the answer, as Pickens well knows, is the combination of horizontal drilling and hydraulic fracturing—or fracking—which can extract oil from shale formations that a vertical well can’t get at.
The Permian Basin was a latecomer to the shale revolution. The Barnett Shale formation, in northeast Texas, which was first fracked by fracking pioneer George Mitchell in the early 1990s, and the Marcellus Formation in Pennsylvania, were both “hot plays” by 2008, while the Permian Basin was just getting started. Partly this was because fracking and horizontal drilling were seen primarily as a way to extract natural gas, and though the Permian Basin contains its share of gas, it is mainly an oil reservoir. It was overlooked for a long time.
But by 2010, a handful of oilmen, after numerous experiments with various fracking formulas, figured out how to crack open the shale to get at the oil. By 2013 everyone in the oil business was racing to the Permian Basin. Pioneer Natural Resources has 690,000 acres in what’s called the Spraberry/Wolfcamp play, with 556 million barrels of proven reserves. ExxonMobil, Occidental Petroleum, ConocoPhillips—they’re all there. Just the other day, Chevron said its exploration budget for the Permian Basin in 2018 would be $4 billion.
You can see the results from this chart. The first Permian Basin oil boom, using traditional drilling techniques, peaked in 1973, when 763 million barrels of oil were produced. Oil production then steadily declined until 2006, when it bottomed out at 309 million barrels. But just a decade later, it had reached 740 million barrels again. It will almost surely top 1 billion barrels a year fairly soon.
One more startling fact. According to John Roberts, one of the co-authors of the IHS Markit study, there have been close to 450,000 vertical wells drilled since Santa Rita No. 1. But there have been only been around 20,000 horizonal wells drilled.
“A vertical well has a range of 45 feet,” he said. “A horizontal well can have a range of 9,000 feet or more. It’s the equivalent of 2,000 vertical wells.”
I know there are plenty of people who wish the oil industry hadn’t invented the techniques that make it possible to recover so much more oil than we ever thought possible. They believe that the more recoverable oil the U.S. has, the less incentive we’ll have to move to renewable fuels.
But I think we should be thankful that that there is so much more oil in the Permian Basin than anyone ever thought. It means we can continue to lessen our dependence on Saudi Arabia. It means that the price at the pump will stay low because there is so much supply. And for all the advances in electric cars and other renewable efforts, it’s going to be a long time before we will fully be able to wean ourselves from oil.
The Permian Basin has been one of the country’s greatest resources for 94 years. It’s not done yet.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Joe Nocera is a Bloomberg View columnist. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. He is the co-author of "Indentured: The Inside Story of the Rebellion Against the NCAA."
In the Santa Rita No. was moved to the University of Texas campus, where it has been on display ever since. And why not? The well was drilled on land that had been deeded to the Permanent University Fund; over the years, the royalties from the oil drilled on that land has generated billions of dollars for both the University of Texas and the Texas A&M systems.
To contact the editor responsible for this story: Jonathan Landman at jlandman4@bloomberg.net.
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