FORT WORTH, Texas—Permian Basin players are high on the potential of the Wolfcamp formation, believe rapid-fire advances in technology will ultimately defy economic modeling that results in pessimistic forecasts, and note that oil-field service companies seem intent on positioning themselves to be the new best friends of upstream and midstream operators.

These are some of the trends identified in a panel discussion during the midstream program of Hart Energy’s recent DUG Permian Basin Conference & Exhibition.

“We’re primarily focused on the North West Shelf, just north of the Delaware Basin,” said E. Will Gray, CEO of Midland, Texas-based Dala Petroleum Corp., an E&P focused on the Midcontinent and the Permian Basin. “There is still is an oversupply in that area. Right now, a lot of the tier 1 that’s being developed is in the Delaware [Basin] where Concho and other E&Ps are doing a great job of unlocking value.”

The high-gravity characteristics of Permian crude bring challenges and opportunities, said Ken Snyder, vice president of business development for Tulsa, Okla.-based Frontier Energy Services LLC, a full-service midstream company.

“In the Delaware Basin, we’re finding a lot of high-gravity crude, 50-plus, mainly in the Wolfcamp down along the Texas-New Mexico state line and just south of that around Orla and West Orla, [Texas],” he said. “There is tremendous well potential there. The wells are coming in really large—1,000 [barrels per day (bbl/d)] to 1,500 [bbl/d] initial production rates—so those are worth going after. Even with the lower crude prices, you can still afford to produce some of that crude.”

The challenges come when the streams all flow into the pipeline at once. Refiners demand a discount because the light crude deprives them of high-value products like middle distillates.

“So as an industry, we’ve started to put the puzzle pieces together to separate these qualities,” Snyder said. “The sour and the sweet have already been separated long ago and actually been put into separate pipelines and once in a while batched in the same line. Now we have to learn how to separate a third characteristic, which is gravity.”

Despite its long history as an oil-producing basin, the Permian’s unconventional resurgence has uncovered areas where it is lacking in sufficient midstream infrastructure. Frontier is working in one such pocket in Eddy and Lea counties, N.M., where crude is now mostly trucked out from the field.

“We’ll take about one-third of that production from a truck to a pipeline when we start up in November,” Snyder said. “There’s probably going to be 100,000-plus bbl/d that still needs to be trucked out of that area. And those wells that are coming on so big out in Wolfcamp have very high [gas-to-oil ratios], so there’s a lot of liquids and a lot of gas. In that area, it’s hard for the plants to keep up with the increasing demand.”

Certain areas need much more gas processing capacity, he said, but added that water infrastructure is grossly underserved in many areas, resulting in an overreliance on trucking.

Gray believes that companies that are more nimble will help resolve the issue of underserved areas.

“I think it’s going to be smaller groups, like private equity-backed [companies], that are going to be identifying those underserved areas,” he said. “They’re dynamic enough where they can do that, build it out and then the larger companies can build a cell model.”

What has kept the Permian humming, in spite of the plunge in the market price of crude oil, is the realization by service providers that they needed to lower their prices, as well, the panelists said. It’s especially critical for smaller operators like Dala that cannot expect to be offered the price discounts provided to companies like Chevron, Occidental or Concho Resources.

“When you look at the amount of production in the Permian, how many of those barrels are from operators that are producing 3,000 bbl/d or less?” Gray asked. “It’s a large, large number.”

“When oil was $100, we were getting gouged,” he added. “Honestly, price gouged by service companies. And they get it now. We’re synergistic. We cannot survive without the other and the midstream as well. So with the costs coming down 20%, 30%, some of these things are economic. You have to factor in the price you’re paying now. It’s all cost related.”

Earlier in his career, Snyder overheard a conversation between two elderly oilmen counting the times that analysts had counted out the Permian as a factor. Their conclusion was that the basin would never be done.

“The basin’s going to continue to thrive,” he said. “We will keep reinventing the way that we are going to do things. So, when we think the pipe is almost full, we’ll come up with a new technology to expand again.”

Gray agreed.

“The upstream is very efficient at what it does and that’s going to be a big factor over the next five years.”