London, 17 October, 2018 – Arthur D. Little (ADL) today released analysis that highlights the vast potential of shale oil & gas extraction across the US Permian basin. Production in the area, which spans Texas and New Mexico, could reach 5.4 million barrels of oil equivalent (BOE) per day by 2023, putting it ahead of every OPEC country except Saudi Arabia.

However, to achieve these ambitious targets the US shale industry will have to dramatically change how it operates. Traditionally it has been driven by independents, but to meet the $310 billion capital expense to unlock the Permian’s reserves and drill 41,000 new wells, companies will have to shift strategy and adopt new business models.

ADL sees four key issues that independents will need to focus on:

• Build partnerships: Move away from current models of selling direct at the wellhead, instead creating demand-pull and long-term partnerships with refineries to guarantee steady cash flow

• Command a price premium: Overcome the current discount of Permian prices against world benchmarks by investing in pipeline and export-shipping capacity, as well as adopting more sophisticated trading capabilities to reduce pricing differentials and guarantee profitability

• Increase operator collaboration: Fully exploiting the Permian is not possible with existing infrastructure. Operators will need to work together to build vital, non-competitive services such as trucking, roads, water usage, power, housing, school and hospitals, or face unsupportable operational costs

• Feed the capital machine: Financing is the biggest challenge for independents and they will require creative new funding solutions to raise the estimated $310 billion required for Permian expansion

Bob Peterson, Partner and North America Energy Leader, ADL, explains: “The rush to develop the Permian will drive a level of activity not seen in the history of the oil and gas industry. Growing production to exceed that of every oil-exporter bar Saudi Arabia and Russia in just five years is an enormous challenge. To succeed, independent oil producers will need to radically change how they operate, increasing collaboration and creating new ecosystems to deliver the necessary infrastructure and investment. In short, independents must act in a much less independent manner if the Permian’s potential is to be realized.”

The ADL analysis “Rethinking Independents” is available here: www.adl.com/PermianImpact