Consulting Firm Studies How Producers are Navigating Pipeline Constraints

With the Permian Basin approaching a century of producing oil and natural gas, the region continues to experience historic cycles of imbalances between production rates and takeaway capacity.

The Permian has increased production nearly 30 percent since the beginning of the year and has nearly doubled production since the beginning of 2016. This surge in production has exceeded takeaway capacity, sending the differential between West Texas Intermediate Cushing and West Texas Intermediate Midland climbing to between $10 and $15 a barrel.

With the Permian expected to continue producing vast quantities of crude and natural gas, midstream companies have the incentive to invest in additional capacity. But this leaves operators seeking ways to navigate that imbalance while mitigating the financial risks of lower realized prices.
Opportune LLP, an energy consulting company, analyzed how Permian producers are navigating this challenge. They found some larger companies, such as Chevron and Occidental, have been faring well by purchasing additional pipeline capacity or selling excess capacity to other producers. Other companies have executed hedges to lock in fixed-price differentials between WTI Midland and WTI Cushing.

Ryan Dusek, director with Opportune’s Derivative Valuation group, discussed the new WTI Permian futures contract established by the Intercontinental Exchange.


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