Have We Reached "Peak Permian"?

The Permian Basin has been the driving force behind U.S. oil production growth for over a decade. But with current production at 6.1 million barrels per day (mmbopd) and signs of declining well productivity, the question arises: Has the Permian reached peak oil?

The Composition of Permian Production

Permian oil production comes from conventional vertical wells and unconventional horizontal wells. The 273,000 vertical wells in the region contribute about 0.4 mmbopd and have been in steady decline at a rate of 5% per year. These wells were the backbone of Permian production before the application of horizontal drilling and large hydraulic fractures to low quality formations, but they have largely exhausted their potential for growth. Without significant redevelopment efforts, their contribution will continue to shrink.

Horizontal drilling revolutionized Permian production, particularly in the Delaware and Midland Basins, which together account for 5.5 mmbopd. The Delaware Basin, covering parts of West Texas and southeastern New Mexico, contributes around 3.1 mmbopd, while the Midland Basin produces about 2.4 mmbopd. These two basins have been the primary focus of operators due to their thick, stacked pay zones and high productivity.

Other parts of the Permian, such as the Central Basin Platform and the Northwest Shelf, make up the remaining 0.2 mmbopd. While these areas historically contributed significant volumes, their potential for additional large-scale development is limited. The focus has shifted toward maximizing recovery in the core areas of the Delaware and Midland Basins, where operators continue to experiment with completion techniques and well spacing to improve recovery factors. However, as we’ve experienced in other plays, development efforts are constrained by geological limits and diminishing reservoir quality in some areas.

Two Challenges

The first obstacle to maintaining production is the high decline rate of existing wells. We estimate the existing horizontal wells in the Delaware Basin have an aggregate first-year decline of around 40%; for the existing Midland Basin producers this figure is about 45%. The aggregate PDP decline curves have a b-factor of about 1.1, so decline lessens over time. Nevertheless, operators must continuously drill new wells to offset these significant decline rates.

The second challenge is declining well productivity as the best acreage is developed first. One way to quantify this is the average cumulative barrels per foot by vintage. In the graph below, newer wells (2022-2024) in the Delaware Basin are underperforming earlier vintages by 10-20% per foot. Part of this decline is due to increased lateral lengths, as longer wells for various reasons tend to have lower recoveries per foot, but the development of lower quality areas and benches is the main factor. We observe that even wells with similar lateral lengths are generating lower recoveries over time.

The Midland Basin has yet to show a decline in per-foot productivity, but its wells generally produce less per foot than those in the Delaware Basin. New wells in the Midland typically recover around 45 barrels per foot, while recent completions in the Delaware Basin are expected to ultimately recover about 65 barrels per foot.

Development Pace and the Future

The decline in per-foot productivity isn’t time-dependent, however; it’s tied to development intensity. At higher development rates, the better areas are exhausted faster. As shown below, in the Delaware Basin, after a stable development period, the estimated ultimate recovery (EUR) per foot has been declining over the last couple of years by about 0.2 barrels per foot for every million feet of lateral drilled (each point is a month of new completions).

Despite this, production can likely be maintained for several years—provided per-foot performance doesn’t decline further. However, history suggests continued degradation, which means more rigs will be needed. Our model, which incorporates the decline of the existing wells and diminishing returns to new drilling, indicates the Delaware Basin will require a 15% annual increase in rig count to maintain current production. At that pace, the rig count would double in five years.

The Big Picture

At some point, the Midland Basin is also likely to experience diminishing returns, requiring more rigs, as well. Meanwhile, vertical wells will continue their steady decline, necessitating additional unconventional drilling just to keep production steady.

So, has the Permian reached peak oil? Not necessarily, but maintaining production will require an increasingly aggressive development pace. Growing production would be even more challenging, likely to demand significantly more rigs and possibly external capital investment. In short, while the Permian’s best days may not be behind it, the road ahead is getting steeper.