In this week's edition of Let's Talk Energy, Jai Singh, Head of US Oil and Gas Research at Rystad Energy and Matthew Bernstein, Product Manager for Rystad Energy's Shale Research join Noah to look at how producers in the Permian Basin are reacting to the oil price swings created by the war in the Middle East and the evolution of corporate strategies there. Stream the full episode now: Why the Permian Basin won't replace lost Middle East oil.

NB: What are the most important factors that will shape the production trajectory of the Permian basin?  

Matthew Bernstein: "The key headlines there is when you think about the longer-term picture for the basin - which again is really this premier shale supply and really premier oil supply in the world - we think there's about enough inventory to sustain 16 years of drilling at the current pace, or the pace that we've seen over the past few years, and that's a sub $55 per barrel wells, and that's on a NPV20 basis. So very, very commercial wells in the grand scheme of things, but as Jai kind of alluded to, this isn't the same Permian Basin that we were looking at five to 10 years ago, where you had all these wildcatters and all these very actively drilling companies. That 16 years of inventory has been incredibly consolidated to the point where five companies- Exxon Mobil, ConocoPhillips, Diamondback, Devon, and Occidental-hold about half of that remaining inventory. And in the Midland Basin, that's even more stark with Exxon Mobil and Diamondback holding over half of that, or about half of that premium inventory. So it's really these large operators running very disciplined programs, and navigating the bulk of production based on what their shareholders want, which is consistent cash returns."  

NB: Could the Permian still surprise investors to the upside as some formations mature?  

Jai Singh: "We shouldn't underestimate technology. Exxon touts (that) they're looking at deploying about 40 technologies. You add that to what everyone else is experimenting with and deploying, and you're talking about the sum of incremental gains that get you this kind of constant efficiency improvement. So that's just driving down cost per foot per foot of lateral drilled. It's important to note that our inventory figures, which are quite healthy as far as the running room available - 16 years of premium, sub-$55 per barrel, NPV 20 break even - that is a snapshot in time. That's at today's costs and today's technology."

NB: Why is Exxon Mobil so much more aggressive on Permian growth than its peers?  

MB: "You look at Exxon's goals, that 2.5 million that you reference, that's 2.5 million barrels of oil equivalent per day in the Permian by 2030. If you translate that from today at 1.8 (millions boepd), last year averaging 1.6 (boepd), you're really getting on a CAGR in the upper single-digit percentages there, whereas most companies are really just kind of trying to either maintain or slightly grow production year on year. So very big difference there. But the way that I see it is, I think Exxon has the right acreage to work with. They have the scale and they have the quality of scale. They're by far and away the largest inventory holder in the Permian Basin. In our analysis, we have them at over 14,000 gross operated locations in the Permian, spread across New Mexico and Texas, Midland and Delaware, a very large position, and it's also predominantly premium inventory." 

NB: What does the recent swing in Permian gas prices mean for how companies think about their gas positions?  

JS: "The Permian gas story, in particular, really started to reshape this year, not just because of price. You mentioned that Waha is about two bucks today, and that's basically $1 under Henry Hub. When Waha is negative, that essentially means that you're paying somebody else to take it for you, which when everyone was in growth mode, it just kind of made sense. Now I think even among the Permian pure plays, it's more of they now have the luxury of thinking more strategically about how they monetize their gas. It's an oil-driven basin, but if you are getting you know three or four bucks for your Waha sometime in the future, that changes your oil break-even." 

NB: Where do you expect the next wave of Permian M&A to come from? 

MB: "We've been calling for this public-to-public consolidation as really the next wave.  So to put it in perspective a bit, the top nine largest producers in the Permian right now control two thirds of the oil supply. That number is up from 40% - accounting for M&A, so not organic growth - just from 2023. So it went from 40% of supply controlled by those entities up to two thirds now, and of course you know that was really driven by these mega deals with Exxon acquiring Pioneer, with Diamondback acquiring Endeavor, with Oxy acquiring Crown Rock, these very large deals in that 2023-2024 period that really transformed the basin, and the shale patch more broadly."  

NB: How much bigger could Permian gas production get, and what does that mean for U.S. gas prices?

JS: "I think with recent activity trends and our modeling of deeper formations and the mix over time, our base case calls for let's call it 36 or 37 (billion cubic feet) per day from the Permian, peaking in the 2030s. I think that number could be as high as in the low 40s. So we're still kind of tweaking our upside case there with a combination of inventory and inventory mix development over time. That really is a welcome development for all of this data center/power/LNG story that we've kind of talked about ad nauseum. Every conference in Houston is inevitably pivoting to talking about AI and power and LNG because those three combined are going to drive US demand to for gas to new heights. And I think without the Permian, frankly, we'd be looking at some very high prices. But when we put associated gas from the Permian into our models, it really keeps a lid on Henry Hub, and that's an important function for all these other industries to work."

Stream the full episode now: Why the Permian Basin won't replace lost Middle East oil.