Shale Forever? A Near Infinite Energy Resource

“We should view the Permian Shale Basin as a permanent resource. The Permian is best viewed as a near infinite resource – we will never produce the last drop of economic oil from the Basin.”

Allen Gilmer, Co-Founder and Executive Chairman at DrillingInfo, Inc., is not a man who minces words, an attribute that has served him well during a long career in the oil and gas industry. When it comes to the Permian Basin and the amount of oil and gas resource contained in it, he becomes positively loquacious.

“We should view the Permian Basin as a permanent resource,” he says, “The Permian is best viewed as a near infinite resource – we will never produce the last drop of economic oil from the Basin.”

No one disputes that the resource in the Permian is huge, but ‘infinite’ is a big word. I asked him to expand on that concept. “That is the practical reality with the amount of resource that is in the ground,” he says, “The research we’ve done indicates that we have at least half a trillion barrels in the Permian at reasonable economics, and it could be as high as 2 trillion barrels. That is, as a practical matter, an infinite amount of resource, and it is something that has huge geopolitical consequence for the United States, in a very good way. It has a huge consequence in terms of GDP, and right now it is creating an American energy global ascendancy.”

Obviously, it is also a practical matter that the pace at which the crude resource that underlies the Permian region in multiple formations will be constrained to some extent by commodity prices, costs, infrastructure and other potentially limiting factors. We have seen the Basin go into another boom over the last 12 months despite relatively low prices and, more recently, rapidly rising costs. Gilmer believes that infrastructure will be the most significant constraint going forward.

“The biggest thing that will get in the way of the Permian’s growing to its full potential is infrastructure,” he says, “I’m not sure you can really put any more trucks on that main highway [US 285] that goes up from Fort Stockton to Carlsbad.” He relates a story of a recent trip he and his wife took to Ruidoso, where his family has a home, and sitting at single highway intersection for more than 45 minutes because there was a mile-long backup of mostly oilfield service trucks trying to get through. “That used to be the back road I would take to go home to Ruidoso when I was a kid. Those roads can’t take that – you literally cannot put 50%, or even 20% more traffic on them. So we are reaching infrastructure limits in the basin.”

I had the idea for this interview when I saw Gilmer give a presentation at a conference in April, during which he discussed his view of the Permian, classifying it as America’s “Super Basin.” The data he presents to support his findings was stunning, and compelling. Gilmer says one of the main reasons he’s been giving a series of presentations this year was as a response to the current “Keep it in the Ground” movement coming from the anti-fossil fuel community.

“I’ve never understood this ‘Keep it in the Ground’ movement. I wonder if they even know what they’re talking about keeping in the ground,” he says, “Because the reality is that [where the Permian Basin is concerned] you’re talking about keeping in the ground an economy that is somewhere between the size of India and China, and that makes no sense to me.” I know that feeling.

If Gilmer’s estimate of the real scope of Permian Basin oil is on target, it would represent a prize of somewhere between $25 – $100 trillion at current prices. The mid-point of that range is equal to more than 3 times the current U.S. federal debt, the low point of it is 40% more than total U.S. gross domestic product for 2016.

But how does that resource estimate square with the much more conservative resource estimates coming out of the Energy Information Administration (EIA)? “From 1923 forward, we have historically underestimated the reserves we have in the United States,” Gilmer answers, “From 1923 forward, the official estimates of forward reserves have consistently been no more than 15 years, and in the last 50 to 60 years, its been no more than 10 years of forward production. And yet, all these years later, we are still increasing production, and we still have that 10 year estimated number sitting there.”

“Wallace Pratt wrote a paper for AAPG [American Association of Petroleum Geologists] in 1952 in which he showed that, for some reason, the experts in our industry have historically massively underestimated the resource potential. He cited a USGS paper from 1905 that predicted the country only had a few years of oil supply left,” he laughs. “We have always done this, and we have always created terrible energy policy because we’ve always done this. It perpetuates this concept that we’re running out of oil, and it’s a concept that has persisted since 1905. It’s a brilliant paper.”