Here is a good article on the subject.
https://rbnenergy.com/no-time-scramblin ... y-vanishes
Keep in mind that most of our model portfolio companies operating in the Permian Basin have good marketing people who secured the necessary takeaway capacity.
Also keep in mind that this is Texas. We have lots of tank trucks and trains that can haul oil.
Permian Basin Takeaway Capacity for oil
Permian Basin Takeaway Capacity for oil
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Permian Basin Takeaway Capacity for oil
Note from Raymond James this morning (May 21):
We've long-modeled massive production growth from the Permian, but it currently appears to be too strong, too fast…not for global oil prices, but rather for the infrastructure supporting the Permian. As we discussed in late-February, we had expected Permian production to overwhelm regional refining and pipeline takeaway capacity as soon as early-3Q18, but the ''blow out'' in regional price differentials in the Permian at the Midland hub versus Cushing, Gulf Coast, and global benchmarks has already materialized.
In fact, due to 1) faster than previously expected Permian production growth, 2) lack of adequate pipeline takeaway capacity, 3) delays in anticipated new pipeline capacity until late-2019, and 4) difficulties in ramping rail/trucking as the ''relief valve'' for Permian crude, we now forecast wider for longer Permian oil price differentials. Overall, it doesn't seem much can slow the Permian down in the short-run given operator outlooks, drilling programs, and completion schedules. As such, we see confirmation that Permian growth is likely to massively outpace local demand and takeaway capacity in the near-term. We now forecast prices at the Midland hub (Permian pricing point) will be discounted to both WTI-Cushing ($10+/Bbl through most of 2019) and Gulf Coast & International markets ($20+/Bbl to Brent through most of 2019). In today's Stat, we: 1) discuss what drove differentials this wide, this soon, 2) recalibrate our production outlook for 2018-2021 versus expected takeaway capacity, 3) along with our transportation research team, review the options for what looks like an increasingly-likely scenario of ''stranded'' Permian barrels, and 4) discuss the winners and losers from wider Permian oil price discounts. Indeed, while there are several winners (e.g., refining and midstream operators), it's important to note that not all producers in the Permian are ''losing'' due to wider diffs, as many have firm pipeline capacity and/or basis differential hedges (we estimate this covers 2/3+ of production) - meaning the wider diff likely won't dramatically impact cash flows and operator activity levels.
We've long-modeled massive production growth from the Permian, but it currently appears to be too strong, too fast…not for global oil prices, but rather for the infrastructure supporting the Permian. As we discussed in late-February, we had expected Permian production to overwhelm regional refining and pipeline takeaway capacity as soon as early-3Q18, but the ''blow out'' in regional price differentials in the Permian at the Midland hub versus Cushing, Gulf Coast, and global benchmarks has already materialized.
In fact, due to 1) faster than previously expected Permian production growth, 2) lack of adequate pipeline takeaway capacity, 3) delays in anticipated new pipeline capacity until late-2019, and 4) difficulties in ramping rail/trucking as the ''relief valve'' for Permian crude, we now forecast wider for longer Permian oil price differentials. Overall, it doesn't seem much can slow the Permian down in the short-run given operator outlooks, drilling programs, and completion schedules. As such, we see confirmation that Permian growth is likely to massively outpace local demand and takeaway capacity in the near-term. We now forecast prices at the Midland hub (Permian pricing point) will be discounted to both WTI-Cushing ($10+/Bbl through most of 2019) and Gulf Coast & International markets ($20+/Bbl to Brent through most of 2019). In today's Stat, we: 1) discuss what drove differentials this wide, this soon, 2) recalibrate our production outlook for 2018-2021 versus expected takeaway capacity, 3) along with our transportation research team, review the options for what looks like an increasingly-likely scenario of ''stranded'' Permian barrels, and 4) discuss the winners and losers from wider Permian oil price discounts. Indeed, while there are several winners (e.g., refining and midstream operators), it's important to note that not all producers in the Permian are ''losing'' due to wider diffs, as many have firm pipeline capacity and/or basis differential hedges (we estimate this covers 2/3+ of production) - meaning the wider diff likely won't dramatically impact cash flows and operator activity levels.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Permian Basin Takeaway Capacity for oil
If you'd like to read this RJ report, including their list of "winners and losers", send me an email ( dmsteffens@comcast.net ).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group