Currently, the Permian is pumping a record 6.5 million barrels per day (bpd)—nearly half of the 13.5 million bpd the U.S. produced in December. However, relentless drilling over the past two decades has depleted much of the basin’s prime acreage. According to data from Novi Labs, nearly two-thirds of the Midland sub-basin’s core and more than half of the Delaware sub-basin have already been tapped.
Brandon Myers, head of research at Novi Labs, noted:
"We’ve never been in a position before where we were on the back half of the inventory story of the Permian Basin."
Slowing Growth and Rising Costs
Oil executives and analysts warn that U.S. production could peak between 2027 and 2030. Occidental CEO Vicki Hollub and Harold Hamm, founder of Continental Resources, both suggest the industry is nearing a plateau.
Though production is still growing, it is slowing significantly. In 2024, oil output growth from the Permian is expected to decline by 25%, reaching only 250,000 to 300,000 bpd. Even the U.S. Energy Information Administration (EIA) forecasts a modest increase of 350,000 bpd—the lowest since the COVID-19 pandemic.
Adding to the challenge, the Permian’s oil wells are increasingly yielding more natural gas and water instead of crude. Over the past decade, natural gas output in the basin has increased eight-fold, while crude production has risen six-fold. The gas-to-oil ratio (GOR) has climbed from 3,100 cubic feet per barrel (cf/b) in 2014 to 4,000 cf/b in 2024, edging closer to the 6,000 cf/b threshold that classifies a well as a gas producer rather than an oil producer.
Similarly, the water-to-oil ratio in the Permian is significantly higher than in other basins. On average, the Permian produces four barrels of water per barrel of oil, compared to a typical one-to-one ratio elsewhere. In some cases, this can rise to 12 barrels of water per barrel of oil.
Economic and Environmental Pressures
Managing excess gas and water has become a costly burden for oil companies.
- Gas production requires treatment and pipeline space, raising operational costs.
- Water disposal is another major expense. Many producers inject wastewater back into the ground, but regulators have tightened restrictions due to its link to increased seismic activity.
- At a 4:1 water-to-oil ratio, disposal costs amount to $2 per barrel of oil. If the ratio reaches 12:1, the cost rises to $8 per barrel—making some operations economically unviable.
The increasing costs of drilling are evident in the breakeven price for new wells, which has risen to $65 per barrel in 2024, up $4 from the previous year. Less desirable areas require a breakeven price of $96 per barrel, far above current oil prices.
Can Technology Keep the Permian Competitive?
Despite these challenges, oil companies remain hopeful that technology and innovation can extend the Permian’s viability.
- Artificial intelligence (AI) is being explored to optimize drilling techniques and cut costs.
- Some producers, including Chevron and Coterra, are recycling produced water for future fracking operations, reducing disposal expenses.
- The Environmental Protection Agency (EPA) recently announced plans to explore alternative uses for produced water, such as data center cooling, irrigation, and fire control.
Clint Barnette, director of geology at Indigo Energy Advisors, remains optimistic, noting that while the Permian is increasingly a “water and gas business with oil as a secondary product”, the sheer scale of its production still makes it economically viable.
"I would never bet against the Permian," Barnette said.
However, with core acreage dwindling, rising costs, and regulatory hurdles, the future of U.S. oil production could look very different in the coming years.