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Could Permian hit downturn just 8,000 barrels before next production milestone?

In a time when the rest of the nation is cutting back production in the face of meager oil prices, the Permian Basin is well on its way to its next major production milestone. After the region’s production increase from March to April of 11,000 barrels of oil per day, the Permian’s daily production total sits at 1.992 million barrels. At this rate, production from the shale play could breach 2 million barrels by the end of May.

However, even if the Permian Basin is able to reach this massive milestone, it may not be able to maintain it. The Midland Reporter-Telegram (MRT) reports that, just like the other plays across the nation, the Permian will inevitably hit a downward trend. “In the second half of the year, the Permian Basin will go on decline like the Eagle Ford, like the Bakken,” Elevation Resources President and CEO Steve Pruett told MRT. As the shale play’s operations develop, the steady incline of production will level off. “We were just late to the party, so to speak,” he said.

The impending stagnation and subsequent decrease in production has been spelled out by the Permian’s rig counts. The rig count has been falling rapidly nationwide for 21 weeks, and the Permian has not escaped the epidemic of idled and stacked rigs. The rig count in the Permian Basin peaked in November at 562 before beginning its downward slope. Now, the region’s rig count sits at 327, just over 58 percent of its record high.

Much like its reluctance to join the party and decrease production, however, the Permian has retained the highest number of rigs in the nation. The shale play still has nearly double the current operating rigs of the Bakken and Eagle Ford regions combined.

According to Pruett, though, the current limbo state of oil prices might not be so bad for the industry. Tighter budgets and smaller workforces have forced companies to become more efficient. Before oil prices declined, he says, the industry was willing to shell out more money, even for what he thinks was poor performance. Now, though, many companies have remedied this.

“We’re high-grading out rigs, we’ve high-graded our personnel. In our case, we choose which rigs to operate and which ones to let go,” Pruett said. And it isn’t just the rigs that are getting skimmed down to the cream of the crop. Pruett noted that the same has happened with the workforce. “They’ve retained their good workers and let go of the poor performers,” he stated.

This rush to increase efficiency and create a strong team of employees likely contributed to the Permian’s continued prowess during this period of extended low commodity prices. But even this industrial powerhouse of production can’t outrun the oil glut forever.

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