How about a 2012 ambling Permian Basin preamble? Oil and gas operators, like grizzled buyers at a cattle auction, are finding the Permian a cut above the regional competition.

The region is in the midst of a technology play that may top the glory days of 1981, when Midland rivaled Houston as the center of the universe in oil and gas. While a cowboy has to throw a wide loop to include the Permian within the nation's unconventional hot spots, operators in the region are applying techniques such as multistage hydraulic fracturing perfected in unconventional plays to coax production out of stacked tight formation vertical plays.

Operators are also accelerating horizontal drilling programs to exploit source rock oil in the Delaware and Val Verde basins, which has brought about a 30-unit increase in rig count since the beginning of 2012.

Meanwhile, high oil prices are shining, driving Permian Basin producers to add dozens of additional rigs to the employment rolls in 2012—more rigs, in fact, than any other U.S. region.

For comparison, the Permian Basin recorded a 135-unit, 53% increase in rig employment between January 2011 and March 2012, nearly double that of South Texas, the next most active growth region domestically. In contrast, the dry gas-oriented ArkLaTex witnessed a 118-unit decline during the same period.

Not their first rodeo

Although many programs came up to running speed in 2011, led primarily by Apache Energy Corp. and Occidental Petroleum Corp., significant activity expansion is possible in 2012, assuming service providers can overcome bottlenecks involving labor and materials, and if midstream players can build infrastructure connecting the broader market to the nascent tight formation plays attracting development in Eddy County, New Mexico, and Culberson, Reeves, Winkler and Ward counties in Texas.

While the greatest percentage of growth in rig counts is in the new horizontal tight-oil formations, including Bone Spring, Avalon and Wolfcamp, the most significant driver originates with a thundering herd of stacked vertical targets. The Permian Basin contains seven of every 10 rigs drilling vertical oil wells in the U.S. onshore sector.

During the past 15 months, Permian Basin oil-directed vertical rig count rose 44%, with the Permian Basin accounting for 84 of the 115 rigs added nationally during the period. Credit the Midland Basin with its Wolfberry-Spraberry combo plays as a major driver for the drilling activity. But gains were also recorded in the shallower San Andres-Grayburg targets on the Central Basin Platform and in numerous vertical plays across the state line in New Mexico's Lea County.

Surprisingly, the Permian Basin remains largely egalitarian despite a sharp consolidation effort as private operators sell out to bigger, publicly held firms. Together, eight operators hold a 67% share of rig employment in the region's horizontal drilling efforts. Similarly, the top five operators account for a 45% share of rig count in the vertically stacked Wolfberry-Spraberry drilling campaign. n

Richard Mason is chief technical director of upstream for Hart Energy.

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