Permian Basin 2018

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PERMIAN BASIN: MIDSTREAM 54 | October 2018 | clients, "It's so bad that the sour and sweet WTI grades at Midland are nearly priced at parity." And there's more: "It's so bad that light WTI Midland costs significantly less than heavy sour crude delivered from Mexico—$62.90/bbl— at the U.S. Gulf Coast. It's so bad that Mid- land light sweet crude is underperforming the light syncrude—$63.79/bbl—manufactured up in Canada. "The only good news for WTI Midland is that at least it is outperforming the price of heavy Cana- dian Select crude—WCS, $42.04/bbl—for now, but, a few days ago, we saw intraday prices for WTI Mid- land and WCS at parity." The WTI Midland (Argus) versus WTI futures on Nymex in late June had Midland at more than -$6 into August 2019 and as much as -$14.48 this October. WTI Cushing itself was $69, propped by an OPEC decision to not increase output beyond its existing quota. Brent was $75. Several analysts estimate that most Perm- ian producers' fl ashpoints are at below $50/bbl. R.T. Dukes, research director of U.S. Lower 48 upstream for Wood Mackenzie, tweeted, "If my Monday morning eyes are seeing it right, Midland WTI futures no longer fall below $50 per barrel. That's an important threshold for planning and sentiment in the Permian Basin." DUCing What will this second half and into 2019 look like? KeyBanc's Deckelbaum titled and subtitled his summary with lyrics from a 1970s ballad that isn't identifi ed here because it might evoke a most unwelcomed earworm. He dropped the "max pain" bomb—besides having already prompted mind pain—in describing where this is headed. In max pain, the greatest number of options, in dollar value, will expire worthless. On a SUDS (subjective units of distress) scale, that would be a 10—unbearably bad. The Mid-Cush differential had been just -$0.40/bbl in January. Deckelbaum had expected in June that every cubic inch of big-pipe takeaway would be in use by now. Further phenomena may include converting water hauling trucks into oil hauling trucks, put- ting further pain on operators that don't have their water on pipe, Deckelbaum added. Those in-basin water hauling trucks might not be in as much demand, though. The Barclays Cap- ital Inc. team expects Permian DUC (drilled, but uncompleted, well) builds and/or operators spend- ing in other basins until the additional pipes arrive. The U.S. EIA estimates some 3,200 DUCs in the basin—roughly twice as many as a year ago. Deckelbaum estimates the top oil-play benefi cia- ries of redirected spend will be the Eagle Ford and Bakken as that oil has suffi cient direct routes to Gulf Coast pricing. 5/17 6/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 6/18 5/17 6/17 8/17 9/17 10/17 11/17 12/17 1/18 2/18 3/18 4/18 5/18 6/18 20 18 16 14 12 10 8 6 4 2 0 -2 20 18 16 14 12 10 8 6 4 2 0 -2 $/bbl $/bbl Mid-Cushing and Mid-LLS Differentials WTI Cushing - WTI Midland Light Houston Sweet – WTI Midland WTI Midland fetched a premium to Cushing at the beginning of 2018 and a roughly $2/bbl discount to the Gulf Coast. Entering the summer, it was discounted between $8/bbl and $16/bbl. (Source: Platts, Bloomberg, Barclays Research)

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