Permian oil output to scale new heights as drillers add wells

NEW YORK (Bloomberg) -- Production from the world’s most prolific oil play is expected to set new records as drillers keep on adding more wells.

The Permian basin of Texas and New Mexico added 122 drilled-but-uncompleted wells in March, compared with 130 the previous month, according to a report released Monday by the Energy Information Administration. Output is forecast to reach 3.11 MMbpd in April and 3.18 MMbpd in May -- the highest since the EIA began compiling records in 2007.

"The slowdown in legacy production is being offset by new-well drilling,” Andy Lipow, president of Lipow Oil Associates in Houston, said in relation to wells that have already been drilled and are in production.

Drillers are still preoccupied with how they’re going to be able to bring new production to market given pipeline constraints. “Existing pipeline infrastructure is rapidly filing up," Lipow added. “The next tranche of new pipelines will only be coming online in 2019.”

Existing pipeline bottlenecks will widen the discount of West Texas crude to the same grade at Cushing, Oklahoma, the delivery point of the NYMEX crude futures contract. The discount is expected to sink toward $6/bbl later this year from $3.50 at present, he said.