“It’s a very dangerous assumption” at the White House and elsewhere to think the trajectory in U.S. oil-output growth can continue at $63 WTI, according to oil and gas private-equity investor Wil VanLoh.
The Midland Basin has about 10 years of core-acreage inventory of new-drill wells left at $63 and other U.S. oil basins have between three and eight years, the founder of Quantum Capital Group said at Hart Energy’s Energy Capital Conference in Houston June 4.
The Houston-based private equity firm has raised and invested more than $30 billion in the oil and gas industry beginning in 1998.
The U.S. has been responsible for 90% of global oil- and NGL-production growth since 2000, VanLoh said.
“That's not going to continue. And I think, unfortunately, there are a lot of people that think, especially in Washington, that maybe that can continue,” he told fellow investors as well as energy financiers, analysts and operators at the conference.
“And I think it's a very dangerous assumption because we've got a lot less oil left in this country at anything close to current prices.”
VanLoh was responding to a question of whether the U.S. has found “peak oil.”
“That really depends on the price,” he said. “So at current prices, we're probably pretty close to peak oil at the low $60s.”
But the U.S. could produce as much as 2 MMbbl/d more with “significantly higher prices,” he added.
VanLoh’s remarks echoed comments last month by Travis Stice, executive chairman of top five Permian oil producer Diamondback Energy.
Stice wrote in a letter to shareholders, “On an inflation-adjusted basis, there have only been two quarters since 2004 where front month oil prices have been as cheap as they are today,” excluding 2020, when the pandemic drove WTI into the $20s.
“Therefore, we believe we are at a tipping point for U.S. oil production at current commodity prices,” Stice said.
At the time of Stice’s May 5 letter, WTI was $58.50, according to U.S. Energy Information Administration (EIA) data. At the time of VanLoh’s remarks, it was $63, according to CME Group data.
VanLoh said that at $63, there may be seven or eight years of inventory left in the Delaware Basin and three or four left in the Bakken and Eagle Ford.
‘Geologic headwinds’
Outside of another exponential-level energy event, such as the shale breakthrough beginning in 2000, “we have to be mindful that technology can continue to kind of elongate, if you will, that prospect of peak oil,” VanLoh said.
“But geologically, when you just look at it, I mean it's all about the original oil in place and then the energy, the drive if you will, the pressure to get that oil out of the reservoir.
“And so you are going to leave a lot of oil in the reservoir no matter what technology you use.”
Stice wrote in his letter, “Today, geologic headwinds outweigh the tailwinds provided by improvements in technology and operational efficiency.”
Vicki Hollub, president and CEO for Occidental Petroleum, said at an energy summit in Oklahoma City in April that, as new-well inventory will be exhausted in the coming few years, EOR is essential in supplementing U.S. supply.
Oxy is seeking the same federal tax credit value for its planned direct air capture (DAC) operations when used in EOR as the credit value for DAC-derived CO2 when permanently buried without purpose.
EOR will be needed, VanLoh said, but “the problem is EOR methods don't work as well in unconventional rock as they do in conventional rock.
“You have a lot smaller pore space; the permeability and the porosity are a lot less. So it's just harder to waterflood or CO2 flood.”
Overall, he isn’t counting on new tight-rock technology to turn things around. “I do think technology is going to have another wave of impact, but I don't think it's going to be anything like the shale revolution was.”
But, he noted, “we overestimate the potential impact of technology in the short run and we underestimate it in the long run. I remember 20 years ago thinking I might need to think about a new career because the oil and gas industry [was] in this permanent decline.
“And then technology brought about the shale revolution.”
Gas inventory
As for gas plays, at $3.50 Henry Hub there are likely 20 years of economic new-well inventory left in the Marcellus and Utica, he added.
In the Haynesville, though, likely just eight years.
The 12-month gas strip was $4.21 at press time, according to CME Group.
While future economic oil prospects are dim at $63, “we have a lot more gas in the United States,” VanLoh said. “I always say the United States is kind of a Saudi Arabia of natural gas.”
And there’s associated gas supply too, including from the Permian Basin, which according to EIA data makes some 25 Bcf/d along with the basin’s nearly 9 MMbbl/d of oil.
The amount of Permian gas supply remaining will move in tandem with declining new-oil supply, VanLoh noted.