Permian Reserves May Be Much Smaller Than You Think

Posted in The Petroleum Truth Report on July 18, 2017

We are entering a new age of American energy dominance according to Energy Secretary Rick Perry. President Trump reflected that view in comments he made last week that “…we’ve got underneath us more oil than anybody, and nobody knew it until five years ago.”

Trump was referring to tight oil production and today, that means the Permian basin.

Global energy dominance by the United States is somewhere between aspirational and absurd.

So far in 2017, the U.S. has imported more than 9 million barrels of crude oil per day, and net imports have averaged more than 7.3 million barrels per day. How exactly can the world’s biggest importer of oil become the supplier upon which other countries depend?

The recently released BP Statistical Review Of World Energy 2017 places the United States 10th in the global ranking of oil reserve holders between Libya and Nigeria (Figure 1). That’s not bad but it hardly puts the U.S. in the same league as energy-dominant countries like Venezuela, Saudi Arabia, Canada, Iran, Iraq and Russia that have on average 4 times more proved reserves than the U.S.

Figure 1. The U.S. is the 10th Largest Oil Reserve Holder in the World. Source: BP and Labyrinth Consulting Services, Inc.

Perhaps the President and Secretary Perry have been reading John Mauldin’s recent work of magical realism Shale Oil: Another Layer of US Power. It features a chart which shows that the U.S. is the largest oil reserve holder in the world (Figure 2).

Figure 2. John Mauldin’s Recoverable Oil Reserves chart. Source: Mauldin Economics and Rystad Energy.

The chart is so wrong that it defies explanation.

Its Rystad Energy source data reveals that Mauldin has misrepresented recoverable resources—all oil regardless of commercial value–as reserves—a specific volume that is commercial at today’s oil prices.

It also seems that Mauldin didn’t show Rystad’s data correctly. Saudi Arabia—and not the U.S.—is the largest holder of recoverable resources according to Rystad (Figure 3).

Figure 3. Rystad Energy Global Oil Recoverable Resource Estimate. The chart shows Rystad’s 2PCX category: proved reserves plus contingent resources plus risked prospective resources in undiscovered fields. Source: Rystad Energy and Labyrinth Consulting Services, Inc.

Rystad’s P1 proved and P2 proved-plus-probable reserve estimates put the U.S. behind Saudi Arabia, Russia and Iran.

There are many other errors in Mauldin’s transcription of Rystad’s data that can be seen by comparing his chart as my Figure 2 with Rystad’s data in my Figure 3. That’s what happens when energy amateurs masquerade as energy experts.

Assessing the Growth Potential of the Permian Basin

So much for U.S. energy dominance today but what about the growth potential of the Permian basin?

Pioneer Natural Resources CEO Scott Sheffield claims that output may exceed 160 billion barrels of oil. Even credible sources like Wood Mackenzie believe that Permian Wolfcamp growth alone will add 3 million barrels per day by 2024.

The EIA, however, estimated that 2015 Permian tight oil reserves were only 782 million barrels (Table 1). That seems low and is considerably less than the 5 billion and 4.3 billion barrels attributed to the Bakken and Eagle Ford plays, respectively.

Table 1. EIA 2015 Tight Oil Reserves. Source: EIA U.S. Crude Oil and Natural Gas Proved Reserves, 2014

I estimate that there are approximately 3.7 billion barrels of proved Permian tight oil reserves using 2016 10-K SEC filings for leading operators in the plays (Table 2).

Table 2. Estimated 2016 Permian Basin Tight Oil Play Reserves. Source: Company 10-K Filings, Drilling Info and Labyrinth Consulting Services, Inc.

All the companies in Table 2 differentiated Permian reserves from other company reserves. Those companies accounted for 47% of all tight oil production in 2016. I used that as a scaling factor to estimate the contribution of companies such as Anadarko, Apache, EOG and OXY that did not separate Permian from other company reserves in their 10-K filings.

The estimate is grounded on a reliable base of 1.7 billion barrels from company filings. The assumption that unknown company reserves will follow 2016 production ratios is reasonable but uncertain.

I imagine that an estimate of only 3.7 billion barrels may surprise many who buy into the vision of American energy dominance. Others may accept the estimate but argue that Permian plays have significant growth potential that the Bakken and Eagle Ford do not.

Concho and Pioneer included tables in their 2016 10-Ks that projected future production from proven undeveloped (PUD) reserves. That data indicates that the two leading producers in the Permian tight oil plays anticipate PUD production to peak in 2019 (Figure 4).

Figure 4. Concho & Pioneer Proved Undeveloped Future Production Expected to Peak in 2019. Source: Company 10-K Filings and Labyrinth Consulting Services, Inc.

Concho’s and Pioneer’s combined peak 2019 PUD production volumes are approximately 25% of their combined 2016 daily production from the Permian basin. That means that the addition of future PUD production may only offset legacy production decline rates.

Anticipated PUD volumes are already included as proved reserves so however we view this data, it does not affect the implied reserves for the Permian basin. 10-K reserve and PUD production forecasts are based on 2016 SEC oil and gas prices. Higher prices would mean higher reserves and PUD production although few now anticipate substantial price changes over the period covered by Concho’s and Pioneer’s estimates.

Tank Theory

Permian tight oil reserves implied by this study are less than accepted estimates for the Bakken and Eagle Ford plays. Permian production, however, has already reached peak Eagle Ford levels and is still increasing (Figure 5).

Figure 5. Permian Tight Oil Production Has Reached The Eagle Ford Peak & Is Still Increasing. Source: Drilling Info and Labyrinth Consulting Services, Inc.

To many, this implies that Permian production will continue to increase and will eventually eclipse output from the older tight oil plays. That may be true but, without additional reserves from new plays or deeper layers, it may only reflect rate acceleration followed by steep decline once peak production is reached. Concho’s and Pioneer’s future production forecast suggests that peak production may occur sooner than later.

This study represents one scenario that may provide context for the claims and expectations about future production potential for the Permian basin.  Aside from weak growth in the offshore Gulf of Mexico, or some return to growth in the Bakken and Eagle Ford plays, it is the only current basis for the crude oil portion of emerging American energy dominance.

For the U.S. to move into the top tier of oil producing countries, reserves must at least double from accepted estimates by BP, EIA and other credible organizations (Figure 6).

Figure 6. The U.S. Must Double Reserves To Become an Oil-Dominant Producer Even Doubling or Tripling Permian Reserves Not Nearly Enough. Source: BP, EIA and Labyrinth Consulting Services, Inc.

In some upside scenario in which Permian reserves of 3.7 billion barrels somehow double or triple, that still will not be nearly enough for the U.S. to become energy dominant in oil.

Engineers commonly think of reserves as a tank—you can drain the tank with the best technology at very high rates, and perhaps make some money along the way, but ultimate production is limited by the size of the tank.

I have presented an estimate of tank size using as a basis data from the companies that know most about the plays. If it is even close to correct, American energy dominance should be recognized as just another expression of alternative facts.


32 comments on this entry

  1. Hi Art,

    Thanks for all the hard work, could you comment on latest GOM discoveries in Mexico. Given the narrative of chronic under investment by PEMEX and the opening up of exploration, could Mexico potentially dramatically move up the standings given there ranking in Figure 1.

  2. Bernie,

    The recent Zama discovery offshore Mexico is not that big. The 1.4-2.0 billion barrel equivalent claim is an in-place number so recoverable volumes are probably 30% of that. Also, it is probably more of a gas discovery than oil so its value is relatively lower.

    I worked in Mexico for many years consulting for Pemex and I worked on one of the Mexico bid rounds a year or so ago. Mexico has 2 big problems in its offshore and deep-water plays–source and reservoir. The source rocks for Tertiary reservoirs are gas-prone and those reservoirs do not seem to be well connected with the Jurassic oil source rocks for Cretaceous reservoirs either in the offshore Campeche area or the onshore Reforma-Tabasco trends.

    The prolific Cretaceous reservoirs in Mexico are fractured limestones that were shattered by the Chicxulub asteroid impact. Younger sandstones are are full of volcanic clays and are therefore not great reservoirs.

    I would like to be more optimistic about Mexico potential but am not.

    All the best,


  3. The Trump administrations actually claims that the US has $50T in shale oil and gas to be exploited… or north of 1T boe.

  4. Yoshua,

    Yes, and so??? The Trump administration claims many things that most people know are untrue.

    All the best,


  5. Art,

    “just another expression of alternative facts.”

    Just call them lies. “alternative facts” are no longer facts when the context within which they are factual is completely misrepresented. John Mauldin is not a purveyor of “alternative facts” he’s a LIAR. Let us call a spade a spade.

    The integrity of your testimony and work demands no less.


  6. Taylor,

    Your directness is indeed refreshing! I cannot be quite as forthright in my posts but agree that there is abundant deception in some public statements about the oil and gas industry. I expect that much of my work is and will continue to be dismissed as an outlier.

    All the best,


  7. A decade has passed since a client asked me to evaluate a “property offering” in Oklahoma that he had purchased on behalf of his Company and was preparing to present to his BOD.

    In the course of my research I observed the wells were named for various breeds of dogs.

    At the conclusion of my report I finished were a recommendation : “The existing wells are remarkably ranked as to their naming, as their value while not in “goat pasture” were clearly “dogs”.

    Many of us share your exasperation with the “many” who “speak with forked tongue”, surviving thanks largely by US bankruptcy courts and “easy money” remaining to be “cleansed”.

    It is a thankless task but I thank you for continuing to voice reason in the fog.

    “It’s easier to fool people than to convince them that they have been fooled.”
    Mark Twain

  8. Bret,

    Thanks for your comments. My work is not entirely thankless because of people like you who are willing to consider data-driven alternatives to the mainstream narrative.

    One good quote deserves another:

    “It was as useless to fight against the interpretations of ignorance as to whip the fog.”
    –George Eliot, Middlemarch

    All the best,


  9. Art – I would like to thank you for your Stirling work. In 2014 David Hughes published a set of papers = in which he looked at the EIA projections of that time. The EIA at the time forecast the following :
    Spraberry Play = 6.5 BBOE recovery by 2040 (8.5 BBOE unproved resource)
    Wolfcamp Play = 2.64 BBOE recovery by 2040 (3.4 BBOE unproved resource)
    Bone Spring Play = 0.68 BBOE recovery by 2040 ( 2 BBOE unproved resource)

    Hughes felt that these numbers were pretty optimistic

    The total forecast sum by the EIA was 9.25 BBOE recoverable from all the Permian plays, putting this into context this is similar to the projected recoverable from the Lula field alone in the Brazilian Santos basin pre-salt

    please can you give an opinion on the work by Hughes – thanks in advance

  10. Alan,

    I know Dave Hughes and have great respect for his work. I expect he was being restrained and diplomatic when he said the EIA production forecasts were optimistic.

    It is difficult for me to reconcile the EIA’s production forecasts with their reserve estimate of less than 1 billion barrels. That is why I undertook this recent evaluation namely, to put some realistic context on the reserve potential of the Permian tight oil plays.

    All the best,


  11. Just crunched some numbers from a Miss. Well in Garfield Co., OK and 20,000′ Woodford well in (South)Blaine County. First is area where $2000 buys the mineral right. Production in steep decline for oil, and gas is flat at 250,000 a day. I value them separately. By funny math, most would convert the gas to oil on a BOE basis, apply $45/bbl for value and use an 8:1 ratio or so (BTU ratio)…Price ratio is 20:1, so they inflate the value of the reserves big time.
    Those reserves touted at 450,000 BOE? Try 50,000 BBL + 3 BCF.

    The Blaine County well is all gas, maybe 4 BCF? Yet leases are going for $6,000/acre and sales of mineral rights from $8,000 and up? Lierle reports up to $11,111 per acre for a Lease??? Insane to me.

  12. Terrell,

    Capital drives production these days, not the expectation of profit. As long as investors believe they can get a a 6-10% yield from loans, bonds and stock in oil and gas companies, capital will flow. Other people’s money will be spent on minerals and wells regardless of value. The insanity that you mention will continue until the money stops flowing and I see little evidence of that so far.

    All the best,


  13. Art,

    I have felt for a long time that producers where doing more than just stretching the truth in the Permian. However it doesn’t really help to go stretch the truth on the other side of the ledger. Using this information to do a bottoms-up estimate of total reserves in the Permian is a fool’s errand for the following reasons:
    (1) The price deck is wrong – 2016 SEC reserves would have been based on a flat oil and gas price deck at very low prices (lower than the forward curve, which you have stated is too low in the out years anyway).
    (2) The SEC reserves only allow a company to report reserves for wells that a company plans to drill in the next 5 years (wells drilled beyond 5 years don’t count as reserves).
    (3) Companies are not required to report PUDs in any consistent way (since the data is not comparable across companies, this data is not suitable for that purpose). There is enough flexibility in SEC standards to drive a truck through them. For instance, as a matter of policy Pioneer attempts to not put PUDs in their reserve numbers. This is an interesting policy which I imagine has caused a number of investors to say their are being “conservative”. The reality couldn’t be further from the truth. What they are doing is making it harder to evaluate the value of their Permian acreage. In any case, one look at Table 2 and you quickly realize that Concho and Pioneer do not have the same reporting approach that the others on the list do.

    I understand that there is not a wonderful data set to do proper analysis, but doing analysis with bad data because that’s all there is, doesn’t make it any more accurate.


  14. HS,

    I’m not sure that I understand what you are saying.

    Do you mean that my analysis is fairly meaningless because reserves are larger due to the 5-year rule and the SEC price deck? Or do you mean that the SEC and companies essentially collude to manufacture larger reserves thanks to free-and-easy rules?

    Pioneer reports PUDs (see p. 34 of their 2016 10-K).

    I agree that there is no rule-based consistency in reserve reporting. There is not even a standard form or format for 10-Ks.

    I value your views but am confused by your comments

    All the best,


  15. Art,

    First off, for all companies in your analysis the price used is the average of the first day of the month price for 2016 (per Pioneer’s calculation that is $42.816 per bbl at Cushing and $2.481 per MMBTU at HH). Management may choose to keep negative NPV reserves in their report, but generally they do not (and these fall off the reserve report lowering overall reserves). Whatever you think about future prices, I doubt you think they will be lower than that for the hereinafter.

    Second, you are not allowed to book reserves unless you show the capacity (financial) and willingness to drill them in the next 5 years. So when we are thinking about what the total reserves might be in the Permian I don’t think anyone thinks they are taking about only what can be drilled in the next 5 years by the current owners.

    Third, the companies have too much flexibility to decide what is considered a PUD. I do not believe there is any collusion here. The SEC is a weak institution by design. And when they wanted to make companies disclose their full reserve report, the backlash was fierce and swift, and the SEC quickly retreated. There are no conspiracies here, just everyone working in their own self-interest. The standards are so wide open that you have one company (Pioneer) reporting virtually no PUDs and others reporting every PUD they are allowed. This was true when prices were high (so it is not because of the price drop).

    What I am saying is that this is bad data to use to extrapolate reserves in the Permian.


  16. HS,

    A reserve is a volume at a price by definition. If a company wants to book a reserve in a given year, the price should correspond to that year. We can argue about whether the price should be based on the average of the 1st day of each month, some other average or the price on the last day of the year, etc. In any case, it’s not our decision.

    The 5-year rule was created when the SEC “modernized” the definition and pre-requisites for booking reserves in 2010. That change was made to meet the needs of the shale companies. Before that, you had to show a map of the trap and could only book reserves—PDP and PUD—above a contour that marked the lowest-known tested or implied water.

    All that was discarded once shale/resource plays became the norm. The assumption in today’s reserve scheme is that all reservoir is equal and PUDs are discretionary at some fairly arbitrary distance/spacing from a PDP well. The outrageous license this gave to operating companies was partly checked by the 5-year rule–you can call almost anything within some reason a PUD but it has to be drilled within 5 years or it goes away.

    The 5-year rule is, in my opinion, a poor solution to a mistake namely, the end of having to in fact “prove” a reserve with a map and confirming subsurface well data.

    I would argue that modern reserve booking is altogether too free and easy, and almost certainly provides an overly optimistic view of reserves—volumes that are commercial at a price. What the shale gas and tight oil plays have shown is that a lot of non-commercial oil and gas gets produced as long as capital keeps flowing to the companies that drill and produce it.

    I think that you want to know what ultimate production will be. You feel that the current scheme of reserve determination provides an overly pessimistic measure of that, and I agree.

    I want to know what production is commercial. I feel that current reserve determination offers an overly optimistic measure of that.

    I don’t like or agree with the reserve volumes provided by companies to the SEC through their 10-Ks any better than you do. Companies are not required to share the production, pressure and test data that supports their reserve bookings. Engineering companies like Ryder Scott and Netherland Sewell are entrusted with certifying the credibility of that supporting information.

    The resulting reserve data is, for better or worse, what we have to work with. I did this study because I wanted to have some rough calibration on what volume of Permian production might actually be commercial according to some imperfect criteria. I am reasonably satisfied that I now know that within some rather broad error bars. It is large but not enormous.

    You want to know how much oil the Permian plays are capable of ultimately producing. My estimate of 3.7 billion barrels does not help you very much because we both know that the companies will produce as much as other people’s money allows them to.

    All the best,


  17. Thanks for your reply – Art – I did read between the lines that David Hughes thought that the EIA numbers were on the optimistic side. A 700 mmbo proven reserve (1P) is a little difficult to tally with a 10,000 mmbo potential recoverable resource (3P or more like 4P). My main point however was that even if the 4P number is correct then it would still be about the size of either Kashagan or Lula, The EIA had a peak rate for the Permian of about 1 million bopd, large but not totally game changing, Similar to what Algeria or Oman produce today. I feel that some people have really gone into wishful thinking dreamland.

  18. Art,

    What I want to know is what production is commercial at different price points. That much is commercial around $43 per bbl & $2.50 per MMBTU (even on a half-cycle basis) is pretty obvious IMO. Learning how much oil is commercial @$50 per bbl & $3 per MMBTU (roughly the curve) is pretty useful. And figuring out how much is commercial @ $60 per bbl and $3.50 per MMBTU (a lot of people’s expectation of prices once inventory has normalized) is even better.

    But I’m not really asking for this analysis, I’m just making the point that the data used is pretty bad because it’s not consistent, that price deck is unrealistic, and that the 5 year rule makes it pretty useless to analyze the reserve potential of the Permian. Kind of like the other side saying that we are a juggernaut by confusing reserves with resource and then stretching that even further. I still appreciate the analysis, just pointing out some flaws in the data.

    Signing off now.


  19. Hi Art,

    Thanks very much for sharing your insights with us. I always look forward to your posts. In the December 2016 update “2016 Tight Oil Realty Check” of the “Drilling Deeper” report, (, David Hughes of the Post Carbon Institute believed that tight oil production in the Bakken peaked in December 2014 and tight oil production in the Eagle Ford peaked in March 2015. Only the Permian Basin – with the exception of Spraberry which David Hughes believes is close to peaking – still has some runway left. If this is correct, the narrative of tight oil ramping up to kill any oil price rally is highly doubtful and moreover the market might be much closer to balancing than currently believed. Any thoughts Art? In February you thought the best days of the Bakken might be behind it. Do you still believe this to be the case?

  20. Art, Thanks for your article refuting John Mauldin’s erroneous paper regarding US shale oil reserves. People actually read and believe these type ‘expert’ articles which give misinformation of our countries hydrocarbon reserves. Next, bad legislation is passed based on the erroneous reserves data such as the US exporting of LNG based on bad assumptions and erroneous reserve numbers as you have spelled out in your other articles. Regards.

  21. Art,
    Thanks for your article refuting John Mauldin’s erroneous paper regarding US shale oil reserves. People actually read and believe these type ‘expert’ articles which give misinformation of our countries hydrocarbon reserves. Next, bad legislation is passed based on the erroneous reserves data such as the US exporting of LNG based on bad assumptions and erroneous reserve numbers as you have spelled out in your previous articles. Regards.

  22. Pioneer’s grand plan to have 20%CAGR to reach 1MM BOEPD in 2026 will produce at least 2 BOE over the next 10 years alone. Pioneer needs to increase its PUD from current 283 MM to over 2 MMM at an unbelievable rate.

  23. […] Berman stellt hier die Schätzung an, dass das Permische Becken rund 3.7 Milliarden Barrel Öl beherbergen dürfte – […]

  24. Excellent rebuttal, Art. Just found your website through your article on Forbes and, as an O&G investor, appreciate your data-driven analysis (which is sorely lacking from this industry).

    I would note that, while Mauldin deserves blame for publishing this balderdash, the author was George Friedman of Stratfor, who has a long history of pontificating without researching and proposing oxymoronic theories.

    Best, and keep your honest (and thorough) analysis.

  25. […] Further reading: Permian Reserves May Be Much Smaller Than You Think, Arthur Berman, The Petroleum Truth Report Archives, […]

  26. At $120 bbl there is 100 billion bbls reserves in all sorts of places in the US. The reality is reserves are what can be economically produced. That is an ongoing process dependent and so many variables that it gives me a headache thinking about it. One thing for sure there will likely be as many uneconomic bbls produced as there are economic. That is the nature of the shale plays with the amount of capital being thrown at them. The death of a thousand cuts seem to be preferred over a clean dry hole.

  27. A lot of it just has to do with price dependence. Permian didn’t do so great when prices were sub 40. And even the recent drop into the high 40s affected activity (based on casual observation of Midland motel and lunch counter occupancy). Conversely, things were really heating up with prices in the 50s.

    I think the average person doesn’t understand how much losing $10 of price can make on a project.

    At a certain extent you really need to step back and say who has better opportunities (higher IRR). There is oil on oil competition and the Permian has to compete with places like Iraq that still have very rich areas to be exploited (although they have their own issues). But still…look how Iraq has risen over the last few years.

    But it does seem like the Permian can beat the EF or the Bakken.

  28. […] And yet, as the same report showed, new oil discoveries have been in long term decline — lately reaching record lows notwithstanding record investments between 2001–2014. Moreover, new discoveries are invariably smaller fields with more rapid peak and decline rates. The recent boom in US tight oil — a bubble fueled by low interest rates and record oil industry debts — has been responsible for most additional supply since the peak in conventional oil in 2005, but is likely to be in terminal decline within the next 5–10 years, if it has not already peaked. […]

  29. […] And yet, as the same report showed, new oil discoveries have been in long term decline — lately reaching record lows notwithstanding record investments between 2001–2014. Moreover, new discoveries are invariably smaller fields with more rapid peak and decline rates. The recent boom in US tight oil — a bubble fueled by low interest rates and record oil industry debts — has been responsible for most additional supply since the peak in conventional oil in 2005, but is likely to be in terminal decline within the next 5–10 years, if it has not already peaked. […]

  30. Hi Art.

    Really looking forward to your observations on Pioneer’s disappointing production (unless you like gas and NGLs, in which case – it’s fantastic).

    Thanks, Greasy!
    (This comment sounds ‘cheekier’ than it should)

  31. Art, excellent article which is very Helpful. I believe the lack of any meaningful EXPLORATION together with Rising demand ( especially for NATURAL GAS 0 will PUSH much Higher and much Faster than the average Person expects . The Permian is I think a REAL Fools Gold RUSH considering the price some Oil companies shave paid per acre ( upwards of $50,000 per acre ) if you do the MATH they will need over $70 dollars to re-capture there costs and make a Profit ( and I am an OPTIMIST by Nature ) best, jerry ( Thank you again Art , great insights )

  32. Would like to know your opinion on this article?