University Lands Reports: Update on Activities, Benefits, and Challenges in the Permian Basin
University Lands (“UL”) recently held its Fourth Annual Partner Forum for operators and service companies that work in the Permian Basin on acreage owned by UL. It is a significant forum, although largely not reported on by the press. This is an oversight. UL manages the surface and minerals on 2.1 million acres of land in nineteen counties in West Texas for the Permanent University Fund, which is one of the largest university endowments in the United States, benefitting more than 20 educational and health institutions across the University of Texas and Texas A&M University Systems. This forum is important, then, because UL acreage covers large parts of the Permian Basin, benefits Texas education and health care systems, and their reports provide an owner/lessor and public interest perspective on oil and gas activities in the most important crude oil play in the United States.
The reports can be found here: http://www.utlands.utsystem.edu/News/2019/6/2019-Partner-Forum
Here are a few highlights from the forum, based on the presentations at the forum by various speakers, both within and outside UL:
- By 2025, the Permian Basin is expected to provide 40% of all U.S. oil production.
- Total oil production in the Permian Basin is expected to more than double to more than 6 million barrels a day by 2025.
By 2025, the Permian Basin, if it were a country, would be the fourth largest oil and gas producer in the world behind Saudi Arabia, Russia and the rest of the United State combined.
- UL acreage is currently producing 285,000 barrels of oil per day, near an all-time high, with a 20% average royalty.
- The economic impacts of this growth are massive. Industry investment is expected to be $50 billion a year. The gross value of the oil and gas produced at the wellhead will exceed $200 billion a year by 2025. This windfall will provide billions in state and local tax revenues that will also benefits Texas schools and healthcare institutions.
- There is a growing workforce shortage. The Permian Strategic Partnership estimates that there are 15,000 jobs currently unfilled, and the industry projects tens of thousands of more workers will be needed in the years ahead.
- This growth in the Permian Basin is causing a need for more infrastructure investment in roads, schools, housing and health care. There are not enough physicians in the area to treat the new residents. The Midland and Odessa schools are overcrowded and need new facilities. And while the Permian Basin has just 2% of Texas’s population, it accounts for 11% of traffic fatalities. These issues need to be addressed.
- The technology of drilling wells continues to improve, further lowering production costs. For example, the average lateral length of newly drilled Permian Basin horizontal wells has increased from roughly 6700 feet in 2014 to about 9500 feet in 2019. These wells are also more efficient and productive.
- Environmental stewardship remains a top UL priority, with new tactics ranging from boots-on-the-ground lease inspections with an infrared camera to a focus on methane emissions reductions. UL’s future environmental practices may include publishing a guide on emissions reduction best practices and an annual report on environmental performance. These practices have already produced benefits – methane emission on a barrel of oil equivalent basis have fallen by 37% since 2014 in the Permian Basin.
- UL’s consensus outlook is that there will be strong oil and gas demand beyond 2040, in part due to growing middle classes around the world who will require more energy. By 2040/2050, oil and gas will still comprise about 50% of global industry demand, according to a variety of sources (BP, ExxonMobil, Shell, McKinsey, IEA).
- More water is both needed and also being produced. Water demand for hydraulic fracturing in the Permian Basin could grow by 60% in 10 years. Likewise, the amount of produced water from oil and gas production may grow between 45% and 92% over the next 10 years. Managing these water challenges will be critical, and present opportunities for more water recycling.
The overall picture is that the economic benefits to the State of Texas and the United States from the Permian Basin are substantial and growing, although some of the stresses are causing problems that need to be fixed. The Permian Basin should continue to provide massive benefits to the Texas economy and its educational and healthcare institutions in the years to come, in part due to the good work and stewardship of University Lands. We need more discussion across the state on how we will invest the billions to come in order to provide the greatest educational and healthcare benefits for all future Texans.