Oil price reporting agency Argus recently released a price assessment for a new grade of Permian crude oil. The grade, known as West Texas light (WTL), covers Midland delivered crude with a higher oil gravity (API) between 44.1 and 49.9. At the time of the announcement, Argus reported that WTL was trading at a $1.40 to $2.00 discount to West Texas intermediate (WTI) Midland, a slightly heavier grade. DrillingInfo’s US oil production data shines a light on the origins of this emerging grade of crude.
US oil production has increased rapidly over the past several years as the combination of horizontal drilling and hydraulic fracturing allowed producers to unlock previously inaccessible resources. With these technologies, US exploration and production companies have transformed the Permian Basin in West Texas and eastern New Mexico.
Previously considered a past-its-prime backwater, it is now the world’s most prolific source of oil, surpassing even Saudi Arabia’s famed Ghawar field. Production in the Permian increased from less than 1 million barrels per day in December 2010 to over 3.8 million bbls/d by December 2018.
As production in the Permian increased, lighter crude oils, those with a higher API, were mixed with heavier crudes to create a blend with specifications mirroring that of WTI. According to Argus, the supply of these very light crudes has now outstripped the capacity to blend them, forcing pipeline operators such as Enterprise Products and Plains to segregate these barrels and ship them in batches based on classifications shown in the table.
To gain additional insight on the growth of WTL production, we turn to DrillingInfo’s well level production data. Regulators require that in addition to production data itself, oil and gas producers must also report the results of initial tests performed on the oil and gas stream extracted from a well. One element of these initial tests is the API of the crude being produced. This data can be slightly lagged, so the most current months are more likely to be missing and will fill in over time. Despite that limitation, the data provides useful insight into the growth in production of these lighter crudes as well as the variation of API across the Permian Basin. By slicing Permian production according to the specifications laid out in the Enterprise tariff shown above, we can track the growth in light crude oil production from the Permian Basin. In December 2010, the Permian was producing less than 40,000 bbls/d of oil with an API between 44.1 and 49.9, the range specified as WTL. By the end of 2018, WTL production was up to nearly 500,000 bbls/d, with another 150,000 bbls/d of oil and condensate with an even higher API also being produced. Production in the WTI range had grown from roughly 460,000 bbls/d to more than 1.9 million bbls/d. The average API for wells with a reported test oil gravity has also been on the rise, increasing from 37 to nearly 41.5.
The Delaware Basin, one of two sub-basins within the Permian Basin, has been driving the growth in production of these very light barrels. As the chart below indicates, production from the Delaware tends to have a higher API than that of its neighbor to the east, the Midland. While API has increased for both basins since 2010, the Midland Basin has remained in the WTI range, while the average API in the Delaware Basin is now in the WTL range.
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