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A new oil rush is occurring in the United States, and once again, it’s in Texas.

U.S. oil companies are rushing to stake their claims for shale oil acreage in the PermianBasin, an area encompassing 100,000 square miles in western Texas and southeastern New Mexico. The area could contain as much as 106 billion barrels of hydrocarbons.

How did this come about?

Because a new technology is opening up previously unattainable sources of oil. This same technology led to the tripling of U.S. natural gas supplies in recent years.

Oil industry’s Permian Basin

The PermianBasin isn’t new to the oil industry. The first commercial well appeared in the 1920s. So far, approximately 40 billion barrels of oil equivalent came out of the Basin, of which 30 billion barrels were oil.

Now the PermianBasin is undergoing a renaissance. The new technology – horizontal drilling and hydraulic fracturing – is already yielding results…

Texas oil production peaked in 1974 at 1.9 millions barrels a day. It declined steadily from its peak, to a low of nearly one million barrels a day in 2008. But production has jumped 20 percent since then, to 1.2 million barrels of oil per day, as the industry began refocusing on the PermianBasin.

The land rush mentality is certainly in full force, and rushing in to add to their existing operations in the PermianBasin are companies like:

Apache (NYSE: APA)
Devon Energy (NYSE: DVN)
Chevron (NYSE: CVX)
Concho Resources (NYSE: CXO)

For example, Devon is drilling into newly discovered shale formations, such as the Avalon, which don’t even appear on old geologic maps of the region.

The land rush is driving acreage prices higher. Prices are doubling in some regions, to more than $6,000 an acre in just six months.

The number of rigs drilling in the Texas-portion of the Permian Basin also soared, from 68 in June 2009 to 357 in June of this year.

Coming U.S. oil renaissance… maybe

Of course, the renewed interest in PermianBasin drilling isn’t an isolated incident. The whole domestic oil industry is undergoing a renaissance thanks to new drilling technologies as well.

In 2010, U.S. oil production rose to its highest level since 2002 due to new drilling techniques. The Energy Information Administration says domestic production of crude oil rose by three percent to an average of roughly 7.5 million barrels per day last year.

The trend looks set to continue, with Baker Hughes (NYSE: BHI) reporting that the number of rigs actively drilling is at 1,860, up 321 from last year. Most of the rigs with the new technology are on land. The PermianBasin is home to 400 of those rigs.

The use of new drilling techniques could lead to another 10 to 15 percent gain in U.S. domestic oil production, according to the energy-consulting firm IHSCERA.

But that’ll only happen if such drilling continues. How the government will regulate it remains to be seen.

Environmentalists fear that this type of drilling contaminates water supplies, in addition to other hazards.

Federal regulators are therefore investigating fracturing, and the state of New York approved a temporary moratorium on it.

In the heart of Marcellus Shale country, in western Pennsylvania, the city of Pittsburgh banned such drilling. And the protests against its use are mounting almost daily in the region.

That makes the PermianBasin even more valuable to oil companies. The people and the politicians in this area of the country have little problem with the use of hydraulic fracturing and other related technologies.

The black gold rush mentality looks set to continue there.

Stockhouse News, 6 July 2011