The Permian Basin: True or False? Fact-Checking “Landman”
This week, our guest is Dan Hoffarth, Chief Executive Officer of Citadel Drilling, a Canadian-based drilling contractor operating in the Permian Basin. Citadel Drilling provides high-performance, automated drilling rigs designed for efficiency and safety.
Jackie and Peter ask Dan to fact-check the popular show “Landman” currently streaming on Paramount+. The series is set in the Permian Basin, featuring Billy Bob Thornton as Tommy Norris, a landman who also serves as the VP of Operations.
The discussion also provides an update on the Permian Basin, which has surpassed all of Western Canada in oil and gas production and stands as the world’s largest producing basin. The rapid production growth in the Permian Basin has cemented the United States’ position as the largest producer of oil and gas globally, by a significant margin. They also discuss Donald Trump’s plan to “drill baby drill” and what that could mean for the future of US oil and gas production.
Content referenced in this podcast:
- Jackie and Peter’s podcast from April 2019 about Jackie’s trip to the Permian Basin
- Jackie’s blog on the Permian Basin from 2019 – Updated to include the rattlesnake picture referenced in this podcast
- Aaron Foyer’s post on GHG emissions savings from wind turbines
- Enverus blog on methane flaring in the Permian
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Episode 273 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the Arc Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Well, Jackie, I’m kind of tired of talking about serious things like tariffs and so on. I know you are too.
Jackie Forrest:
And takeovers.
Peter Tertzakian:
Takeovers and all the other rhetoric which we had bombarded with, so let’s have some fun. I don’t know, let’s talk rattlesnakes and TV shows to start. Should we do that?
Jackie Forrest:
Yeah, yeah. Well, as I told all our listeners, that I was really into the Landman over the Christmas holiday, and I promised them an episode. So, I’m very excited that today we’re going to talk about the Landman Texas, and of course, we’ll talk about some serious things like the Permian Basin-
Peter Tertzakian:
We will.
Jackie Forrest:
… and that sort of thing too.
Peter Tertzakian:
We will. And we actually have a validator of the facts on the show, the Landman, with us. We’re delighted straight from the Permian Basin in Texas, we have Dan Hoffarth, chief executive officer of Citadel Drilling.
Dan Hoffarth:
Thanks for having me. I appreciate the opportunity to discuss the show and everything relevant in the Permian with you.
Jackie Forrest:
Okay. And also, you are an ARC financial portfolio company, and we wanted to disclose that. But first of all, tell us a bit about Citadel Drilling and you moved. Actually, you’re a Canadian drilling company that moved to the United States. Tell us why you did that, and do you think there’s any chance you’ll come back to Canada?
Dan Hoffarth:
Yeah. That’s a great topic. Right from the beginning, we started as a company in 2013 in Canada. Come 2017, all the ups and downs that we had in the markets, we realized times weren’t really great for us. We had decent utilization at that point, but that was because the company had brand new rigs, and we brought higher specs to the table. We had experienced and professional crews.
The amount of available days in Canada, though, were limited due to operator budget constraints at the time. And then we have the phenomenon of spring break-up, where two, three months out of the year are unavailable to you while the snow melts. So we got to a point where, financially speaking, the market was predatory, day rates were unsustainable, and we had to look for a pivot. So, we explored the idea of moving basins to the United States.
It came one of our board meetings, and all of a sudden, that seemed like a pretty disruptive comment to make and opportunity to undertake. So, we started looking in the Eagle Ford, and the big question was, “Well, we don’t know what we don’t know.” So, we had to start researching everything and saying, “Okay, well, at three o’clock in the morning on a Sunday, where are we going to get vendors to help us services? Where are we going to get welders? Where are we going to get access to repairs and mechanics?”
So, we did all of that research, and in the end, it actually didn’t pan out. The operator that we were talking to, which I had an old colleague of mine that I had worked with years ago, changed paths. That operator became actually insolvent, and we had to start over. And then we said, “Well, if we did all that homework in the Eagle Ford, why don’t we do it in the Permian?” And we started over on that, and from there, it was really interesting. We came across a company called Apache, which is still in operation today.
When we were in Canada operating prior to Apache leaving and selling their assets in Canada, we were working for Apache in Canada. And then we found a contact out of San Antonio and got conversating with them and ended up… they went first. They took a rig. They contracted two of our rigs and said, “Hey, we’re looking for a better service in what we can get in the Permian right now.” And they called it a fishing from a bigger pond.
They said, “We’re catching and releasing the same fish, meaning the same rigs that we’ve had before, and somebody’s already throwing them back in the pond for a reason. So we’re looking for a better-performing rig crew. We’re looking for better-performing rigs. We’re looking for higher spec rigs.” And once somebody went first, things really started falling into play. We started contracting rigs to Concho and to Trimax and a bunch of the other companies down here.
So before we knew it, we had contracts fully executed for all six rigs, and they participated in the moves, and that transition happened. So, by 2019, we had all six rigs operating down in Texas in the Permian. You ask the question of, is there a motivation to return to Canada at this point. And unfortunately, we just don’t see anything that would be viewed as compelling to return when we compare the markets.
When we take a look at Canada, we still have the same geographic constraints, being that we only operate plus minus 200 days a year. While one would think, “Hey, something should bear a better day rate due to the lack of available rigs.” And we don’t see that playing out just yet. There still seems to be an inventory of drilling rigs in Canada. Our research indicates that our day rates in the Permian Basin are still superior to that in Canada, and then we get the added benefit of an exchange rate as a boost.
So unless we have a mechanical or… and unless we have an mechanical or, say, an equipment recertification process, which happens only every five years, we’ve had 100% utilization year over year. And all that said, even in the US, when we take a look at those improved economics, we still don’t see any drillers making a business case to build new rigs.
So for us, which has been one of the best markets we’ve participated in the last decade in the Permian, it still exceeds other basins. And we’re in a situation where there’s still not a business case to say that new rigs should be on the market or being considered to be built.
Peter Tertzakian:
Wow. That’s a great sort of intro into all the things we’re going to talk about, and being down there, you can now feed into the whole drill, baby, drill rhetoric because you’ve got the drilling rigs, but we’ll come to that. We’ll come to that. But we want to lighten it up a little bit here, Dan, and get your perspectives on the somewhat glorified nature of the business through the TV show Landman.
And now Jackie is itching to talk about it because I don’t know how many hours of your life you’re not going to get back by watching that show. But maybe Jackie, you could give us kind of a synopsis of the show for those in the audience who haven’t watched it. And then we’re going to do… What are you going to, Jack? You got to do true and false.
Jackie Forrest:
We’re going to do a true and false. So Dan, get ready for the questions here. It’s going to be like a game show. But I did want to thank Dan because, in 2019, I visited the Permian Basin, and he toured me around. I got to see how large it was because, I think, we drove to the outer reaches of one of the basins.
And so we will talk a little bit about it in terms of the size of it. But there’s Delaware Basin to the west and Midland Basin to the east. I drove almost to the edge of the Delaware Basin that day to where you guys were working with Apache. There’s also two major cities, Odessa and Midland, and about 300,000 people.
If you look at it on the map of Texas, it doesn’t look that big, but that’s because Texas is so large. The whole thing is about the same size as Washington State. So driving across it is a major feat. So thanks, Dan, for showing me there. And I will put a link to… We had a blog with pictures of my trip, and we also had a-
Peter Tertzakian:
Yeah, those are good.
Jackie Forrest:
… podcast at the time, but seeing the Landman show, it looks exactly like it did in 2019. A lot of flat as a pancake desert and scrub bush, kind of things like that.
Peter Tertzakian:
Mm-hmm. Mm-hmm. Okay. Well, shall we go on with the true and false?
Jackie Forrest:
All right. Okay. Are you ready, Dan? So the first question, one thing in the show, is fights in the man camps. They call them man camps. By the way, they haven’t come up with gender-neutral names for the work. We call them work camps, I think.
Peter Tertzakian:
Yeah.
Jackie Forrest:
Don’t we?
Peter Tertzakian:
[inaudible 00:07:43].
Jackie Forrest:
Yeah. But okay. Fights in the man camps were quite common, including ones that put people in the hospital with ailments like collapsed lungs and things like that. So is it very common to be having fights in these man camps?
Dan Hoffarth:
Well, so it might be in a little bit of a unique situation where we avoided man camp usage as much as possible again. We look at a number of reasons for that. One being it’s a place where people recruit. So competition for labor is extremely fierce in the region. So we take a look at it from that perspective.
And then quality of living was another area. So we actually provide our own camp workforce housing on site. That said, we have had exposure to man camps. We’ve been down here eight years and we haven’t had a single worker involved in a single fight since we’ve arrived that I know of.
Jackie Forrest:
Right. But you are Canadian, right? So you’re probably not in such a feisty group.
Dan Hoffarth:
We apologize first and then try to avoid the fight, I guess.
Peter Tertzakian:
Okay. So based on the one data point, we will say that that is false. There are no fights in man camps. All right.
Jackie Forrest:
[inaudible 00:08:49]-
Peter Tertzakian:
How about guns? There’s guns in the man camps in the show, guns in the trucks and stuff. Is that…
Jackie Forrest:
Yeah, the workers actually have guns at work in their trucks.
Dan Hoffarth:
So, depending on the operator that you’re working for, but the most common statement in any of our contracts that we sign within the operators that we work with have a clause that state there will be no firearms allowed on the work site. That said, the American Constitution has a provision in which all people have a right to bear arms, and off work sites.
So, I can’t comment on those that say they tuck them away, or they hide them, or they take them to the work site and just don’t talk about it. However, the American population, yeah, there’s a high percentage that do carry firearms with them, and whether they’re allowed or not on-site, I can’t really comment to that side, or whether they’re actually there. I haven’t witnessed them being present. It’s not like somebody’s wearing a six-shooter on their hip.
Peter Tertzakian:
Well, I’m going to cut through it then. I’m going to call that a crew.
Jackie Forrest:
Yeah. Well, just by the way, I used to work for a company with an office in Houston, and there was a sign on the front of the building like, “Guns aren’t allowed in here.” So, I think people are bringing them to their office buildings too.
Peter Tertzakian:
Yeah. Yeah. Okay, so Jackie, what’s the next one?
Jackie Forrest:
All right, new junior workers on a drilling rig called Worms and sent out to the field without any training.
Dan Hoffarth:
So, fully false. All workers are sent out with training. That is just a part of our business and part of our industry in regards to competency training, ensuring that we have competent workers on site. We have a lot of fast-moving equipment. We have a lot of powerful equipment. And you could say that when you take a look at a drilling rig, the workers are working inside the machine.
So we’re trying to keep people out of the danger areas, and however, a lot of training is required around that site. Every company I know of, us included, do three to four days of competency training before a worker is allowed to leave the initial yard and go to the site. As far as being called worms, I have heard that term in the past. That is an outdated term, and anyone that still uses it probably shouldn’t be in the business.
We are a business of professional workforce, and again, you take a look at the equipment that our people are operating and our field professionals participate in, we’re drilling out three and four mile laterals and hitting targets the size of a cardboard box. This isn’t done with people that would probably stand for the nickname of a worm.
Peter Tertzakian:
Yeah.
Jackie Forrest:
What is the name, though? There is a name for the junior person, though, isn’t there, on a drilling rig?
Dan Hoffarth:
So, the typical term has always been rough neck on that side. At this point, we’ve got trainees, we’ve got a green worker program. We highlight the people that are new to site with a green hard hat so that the industry of other service companies that come to site can recognize who the inexperienced or less experienced workers are. And we can identify those to that’s a visual warning or a visual cue to say, “Okay, this individual requires a little bit more of an understanding when we’re talking about what job we’re about to take on.”
Peter Tertzakian:
Yeah. Okay. So we’ve got two falses and one true. So you mentioned, Dan, and I know I’ve been on many drilling rigs myself. A rig is like a machine. The scale is often large in terms of the machinery moving pipes and things around.
In the show, there’s routine occurrence of deaths in workers and oil and gas. Seems like the show has a death or a serious injury on the job almost every other episode, pipes rolling off the trucks, et cetera. Okay. Is that true or false? Is that the caricature, that this is a very dangerous place to work, and death is common?
Dan Hoffarth:
Well, I took a look a little while back, let’s say, at the 2022 statistics in Texas alone from the Bureau of Labor Statistics, and in that year, there were 41 fatal occupational injuries relating to oil and gas extraction operations. So, that’s from every aspect of the business. Those that are servicing wells, those that are drilling wells, those that are working at gas plants.
So that’s the entire industry. So, there were 41 fatal deaths in that scenario. Now, 23 of those were vehicle accidents, so almost half. But that still leaves us with an unacceptable number of deaths related to workers coming to work and having an unfortunate accident. We take a look at this very seriously. This is still… We’ve got many committees in our industry, especially on the drilling side.
Myself and a number of our people at Citadel are on committees at the IADC, the International Association of Drilling Contractors, and the panels in which we sit on and the panels in which we deliberate on are all focused around safety and improving safety in the industry, and what are the metrics that we can look at and how can we help each other to do that?
So, I do have to say it’s still a high number. It’s definitely nowhere near what we’re seeing on Landman in regards to backwards pipe wrenches getting applied with a hammer and things going boom. So, there’s obviously some Hollywood to that, but it is a very serious topic that we continue to focus on in our industry.
Peter Tertzakian:
So, as I do the math, 41 in a year minus 23 for traffic accidents, that leaves 28, but you said it’s all industry, including facilities, pipelines, and so on. So, if in the extreme case, a quarter of those were attributable to drilling rigs, which I think would be high, but let’s call it five.
Dan Hoffarth:
[inaudible 00:14:06].
Peter Tertzakian:
That would be one every 10 weeks, which is not one every two. So, I think we got to give that one a false, Jackie.
Jackie Forrest:
Yeah, I think so. Okay. Well, I said this was going to be fun. So far-
Peter Tertzakian:
[inaudible 00:14:17].
Jackie Forrest:
… we’re talking about death and things like that, but here’s one because I’m a girl from Northern Alberta, and we used to have these things called bush parties when I was young where all the underage kids would get together on some kind of gravel road and there’d be a party there where we would burn, I don’t know, wood crates and things like that.
They showed something similar to that, but this time, it was in the Permian. And the high school students were having parties around the oil-producing rig like the pump jack was in the background, and the light of the flare was keeping it nice so people could see, and I guess they don’t need fire the way we did in Northern Alberta. So does that really happen? Are kids actually having parties at these well sites?
Dan Hoffarth:
I can’t comment on that. I haven’t seen that personally, but I’m sure the kids are having parties, and I’m sure they’re driving out of the city in some cases to do it. And if that’s the case, I don’t know how you don’t have a pump jack in the background.
You look at the density of pump jacks here, you don’t get to turn around with too many degrees of vision without a pump jack. They’re usually in people’s backyards around here. So it’s a little bit of a different landscape when it comes to that. So there’s a good chance that one’s true.
Peter Tertzakian:
Okay. That’s a true. So we are two trues and three false. What’s the next one, Jackie?
Jackie Forrest:
Okay. Well, drug cartels are a big problem in the Landman. They’re operating in the same areas as the oil and gas-producing areas, and there’s lots of conflict. And there’s the mafia-type characters driving up to the oil rig, and that’s why it’s good to have the guns actually in your truck-
Peter Tertzakian:
Ah.
Jackie Forrest:
… because you got drug cartels that are telling you they need to operate here, not you. Is that a thing? Are there drug cartels in the Permian Basin?
Dan Hoffarth:
I’m sure there are. It’s well known to everybody that this is a trafficking corridor, if you will, based on the geographic location. When we first came down here, and ever since, it’s always been a warning that goes to people that there is a good chance of getting carjacked if you see somebody that is having car trouble for an example. Now, we’re not getting approached by drug cartels, and there’s not people driving up in trucks and telling us to give us money or any of that stuff.
We don’t see any of that, those interactions. The warning we’ve had is be very cautious of people looking for help on the side of the road because that’s probably a place you’re going to get robbed or ruled over. And they said you always have… everybody has water in the truck, and you throw out a couple bottles of water, you call roadside assistance or 911 that people need help on the highway if it is real, but you don’t expose yourself to that risk.
Peter Tertzakian:
Okay. I do think…
Jackie Forrest:
A maybe there.
Peter Tertzakian:
Well, how about a little T not a big T-
Jackie Forrest:
Okay, that sounds good.
Peter Tertzakian:
… for [inaudible 00:16:49]. Okay. But maybe not to the extreme that is portrayed on the show, but all right. There’s a bar for workers called the Patch Cafe. Are there places like that?
Dan Hoffarth:
Midland has come a long way, and we have a number of really great restaurants and places to go in the evenings once we’re done work, but I don’t know many people in this industry that can stay in this industry by hanging out in cafes and day drinking like we see in the show. Midland is a place that’s pretty connected to either ranching or the oil field, and it’s pretty common to know people in these restaurants.
But I can honestly say you look at the alcohol consumption culture, and I compare the two places. When I worked in Calgary, it wasn’t unheard of to see people having a beer at lunch. You don’t see that here actually. Eight years, I don’t think I’ve had a beer at lunch, even on a business meeting. It’s a very drawn lines in regards to beer, and consumption seems to be associated with after-work and tailgate parties and sporting events.
Jackie Forrest:
Yeah. So you’re not going two-stepping in and drinking beer right after this interview, Dan? Because they’re all like two-stepping in the middle of the afternoon too, which I found interesting.
Peter Tertzakian:
Okay, I’m going to give that an F.
Jackie Forrest:
Yep.
Peter Tertzakian:
I’m going to give it a…
Dan Hoffarth:
No, unfortunately, I got a couple more meetings to do, and we’ll think about where we’re going to have dinner tonight, probably somewhere around 6:00 PM.
Peter Tertzakian:
Okay.
Jackie Forrest:
Oh, I found this one pretty funny. So there’s a scene where this young couple is swimming in the water pits near a drilling rig to the light of a flare. And I got to think I actually looked it up. Those pits are-
Peter Tertzakian:
Toxic.
Jackie Forrest:
… full of toxic chemicals and stuff, but there might be some water pits for storing water for fracking. But even then, a lot of that’s produced water. That seemed really unrealistic to me.
Dan Hoffarth:
Well, I think that’s just dumb and unless you lost a bet, I don’t see… haven’t seen anyone in 30 years do that. So yeah.
Peter Tertzakian:
All right. Well, that’s a quick F. Let’s just… There’s a lot of wind and solar farms in the Permian. So are there any doubts in the oil and gas producing community that renewables are low carbon? I mean, Billy Bob Thornton is the character as Tommy Norris. He explains that, “Wind turbines take more energy to make than they produce in 20 years of life.”
Dan Hoffarth:
There’s absolutely always differing opinions about the true carbon footprint of renewables versus hydrocarbons and people naturally kind of side to one side or the other. That said, I believe that the debate shouldn’t be about oil and gas versus renewables at this point in the game.
The reality is that energy demand is continually increasing, and both hydrocarbon and renewables have a role to play. Oil and gas remain an irreplaceable commodity for industrial processes and petrochemical usages and baseload energy, while renewables continue to contribute to a greater diversity of our energy mix and taking over electrical demand.
Again, I don’t think the show does a good job of where our industry actually is, and we’re at a point where we believe that it needs to be framed differently. It’s not an either/or debate. It’s more of a shifting of the conversation of how can we responsibly develop all energy forms to meet the growing global demand and maintain the expectations for quality of life.
Peter Tertzakian:
Yeah. But it’s true that there’s a lot of wind and solar farms in the Permian. There’s lots in Texas [inaudible 00:20:13].
Dan Hoffarth:
[inaudible 00:20:13] wind. We see a lot of wind in the area we’re in. There’s a lot of wind farms. I haven’t seen a ton of solar farms like where our rigs operate, and that’s kind of generally the geographical area that we drive through. But definitely the wind farms are easy to spot.
Peter Tertzakian:
So that’s a T.
Jackie Forrest:
I do want to do a shout-out. Aaron Foyer wrote a LinkedIn post, and that was done by Orennia, where he works, and another colleague there. I will put a link. It got a lot of interactions and a lot of comments on it, but he had calculated that the GHG emissions avoided by running a turbine 20 years were about 160 times larger than what is needed to make it. So that was Aaron’s calculation there, which we will put a link to.
Peter Tertzakian:
Okay, next one’s the fun question. Go ahead.
Jackie Forrest:
Okay. One of the scenes, the lawyer, who none of us liked, she ran into a rattlesnake near the oil-producing area. So is that a real thing? Do you have to worry about safety and rattlesnakes?
Dan Hoffarth:
That’s the real deal. They come in all shapes and sizes, and you have to have a different sense of awareness of where you’re going to put your hands or where you’re going to walk based on the climate changing in regards to the hot and cold days. The cooler days like we’re having right now in Texas, the snakes like to kind of find a warm spot. So you do have to be cautious.
Peter Tertzakian:
Yeah. Well, you’ve sent us a photo of this gigantic one, which we’ll post, right, Jackie?
Jackie Forrest:
Yeah. It is as tall as a human being.
Peter Tertzakian:
Well, [inaudible 00:21:37].
Jackie Forrest:
From Alberta, Southern Alberta. We’re used to seeing garter snakes the size-
Peter Tertzakian:
Well, they have…
Jackie Forrest:
… [inaudible 00:21:42].
Peter Tertzakian:
They have rattlers in their Medicine Hat. I’ve seen them there, but this one is just gigantic. The head is the size of a shovel. Dan, so I mean you’ve worked in Canada. You’ve worked down there. Would you rather encounter a grizzly bear on the well site or a rattlesnake?
Dan Hoffarth:
I spend a lot of time outdoors. I am an outdoorsman. I like to hunt. I like to fish. I’ve had bear encounters in the past. They make you nervous. You hopefully see them before they see you, but that’s generally a luxury you get based on their size. Rattlesnakes, again, I grew up on a farm in Saskatchewan. We had garter snakes.
At best, they give me the willies, and I don’t have the defense mechanisms or the history in dealing with them. You see some of the local Texans. They’re pretty commonplace. You get a dog, a family dog. They put it through rattlesnake training here. However, for me, I’m not a snake guy, so I’d probably prefer to see the grizzly bar.
Jackie Forrest:
Yeah. Well, when our listeners see the picture of this thing, they might prefer the grizzly bar too. Well, I think that’s the end of our true and false.
Peter Tertzakian:
So the end of the true and false, and guess what? Five true and five false. And I think for a Hollywood production, that’s actually pretty good.
Jackie Forrest:
Yeah, that’s true. Actually, better than I would’ve thought watching it. Hey, anything that would surprise us that we didn’t touch on based on your time down there that people might not know?
Dan Hoffarth:
I have to give a shout-out to all the businesses in Texas and the people that are here. They have treated us exceptionally well. I don’t think… I think the surprise is the manner in which we were accepted in this jurisdiction and we know we’re coming into somebody else’s backyard to do work and we want to participate in that as best possible. But we’ve honestly, we’ve been treated like gold down here.
Jackie Forrest:
All right. The Texas hospitality.
Peter Tertzakian:
Yeah.
Dan Hoffarth:
I really don’t think many people would think that would be the case.
Peter Tertzakian:
Yeah. No, the field culture is very accommodating. I mean, I worked in the field for three years. It’s just a very accommodating culture. Let’s… Do you want to talk a little bit about some of the fundamentals-
Jackie Forrest:
Yep. Yes.
Peter Tertzakian:
… of the Permian-
Jackie Forrest:
For sure.
Peter Tertzakian:
… as we get into the latter half of the podcast?
Jackie Forrest:
Okay. Well, the fun is ending because we’re going to talk about President Donald Trump. Now, everyone back to that topic. But he has said that the US has a lot of oil, and they don’t really need Canadian oil because they have a lot of oil. Now, we fundamentally think they still need our oil, but there’s no doubt that the US is the biggest supplier of crude oil and natural gas in the world. So just to go over the numbers, 13 million barrels a day of production of oil in the US.
Russia and Saudi Arabia are less than 10 million barrels a day at this moment. I think Saudi could produce more, but… and 100 BCF per day of gas. The next largest provider of gas is about half that much with Russia. So they for certainly do have a lot. And the Permian Basin is obviously a big part of why that is. Interesting little fact. The Permian Basin now produces more oil and gas than all of Western Canada. It’s 6.2 million barrels a day of crude oil where we’re at five, and their gas production is 25 BCF per day while we’re at 18. So it is a massive, massive-
Peter Tertzakian:
It’s massive.
Jackie Forrest:
… resource for the US.
Peter Tertzakian:
Yeah. But I think it’s important to point out another stat, and that is that drilling in Texas, I don’t know, it goes back a hundred years of the big discovery, I don’t remember the date off the top my head.
Jackie Forrest:
1920s was when the… Yep.
Peter Tertzakian:
1920s there was Spindletop was one of the big wells that sort of kicked off the oil boom. It grew. US oil production grew and grew and grew. And then it started to mature with the existing vertical drilling technologies. And by the early 2000s, we were talking peak oil, not peak oil demand, but peak oil supply.
And it was because oil and gas production in the United States, especially in Texas, was just declining very steadily year over year over year. And then, all of a sudden, the technologies that Dan, I know you use on your rigs, it’s ubiquitous now.
The horizontal drilling and hydraulic fracturing technologies came in. And this is a stat I want to bring forward. In the last less than 10 years, Texas has been able to grow its production by more than all of Alberta’s production combined.
Jackie Forrest:
Yeah.
Peter Tertzakian:
And so it’s quite staggering how technology can come in and just change the game completely. And I know Dan, I’d like you to comment on this because it started out where you start drilling horizontally and out laterally, maybe a kilometer, and that was considered crazy, as you alluded earlier in the show. Today, you can go… well, tell us how many kilometers, and as you said, hit the cardboard box. Well, that’s two or three kilometers down and several kilometers out.
Jackie Forrest:
And remember, we’re in Canada, so we don’t want miles in this description.
Peter Tertzakian:
Okay, I’ll do the-
Dan Hoffarth:
Yeah, [inaudible 00:26:21].
Peter Tertzakian:
… real-time translation. I’ll do the real-time translation.
Dan Hoffarth:
I’ve been down here a long time, so I’m going to need a translator. Absolutely. No, it’s been a remarkable journey here. We first came down in 2018. Our standard wells would look something along the lines of 10,000 feet down and 10,000 feet across.
And it seemed like every week went by, we’d improve upon that. We got to a point between then and now where we would consistently drill two and a half, and the three-mile lateral came on the horizon and that was like a, “Holy smokes. I can’t believe what the business has accomplished,” a three-mile lateral.
Peter Tertzakian:
So it’s almost five kilometer, five kilometer, we’ll call that rough.
Dan Hoffarth:
We’re looking at sites today where we go to what we’re doing right now a three miles normal. We’re doing three and a half and the four-mile lateral has now been accomplished. And to even further complement the complexity of what these wells are looking like, it’s a four-mile lateral with a U-turn. So we will drill down 10,000 feet, we will go two miles out, we will do a U-turn and come two miles back.
Peter Tertzakian:
Yeah. That’s just staggering the technology and hit a cardboard box.
Dan Hoffarth:
And then still hit the targets.
Peter Tertzakian:
It’s just amazing. The amount of technology now that goes into this is really underappreciated. It’s just an absolute game-changer. I mean, it’s like going from Downtown Calgary down… This is 3000 meters, that’s 10,000 feet. Then you go all the way out past the University of Calgary and then come back.
Jackie Forrest:
Yeah. Yeah. And the other phenomena, Dan, you can talk about this, is you’re doing it faster than ever. The productivity in terms of the time it takes to drill a certain distance has really improved too.
Dan Hoffarth:
Absolutely. We’ve always looked at our business as driven by the philosophy of innovate or die and have a relentless commitment to continuous improvement. That was one of the differentiators for us as a drilling contracting company. We started this company with a commitment to continually look for 15-minute increments where we can improve our performance and what may have been a unique perspective and differentiator for our company… oil companies.
So that might’ve been unique for us as a drilling contractor, but oil companies have been… have remained committed to that practice for decades. They are always looking for ways to improve, ways to reduce costs, improve productivity. And lots of people kind of talk about, “Oh, you’re drilling yourself out of a job because of this.”
However, it really is a key to staying in business. There are no finish lines in this business. And that’s one of the things that I think any successful person in the industry needs to understand and does understand very well is that there’s no finish lines. There’s going to be a tomorrow, and tomorrow’s objective is to improve.
Peter Tertzakian:
Mm-hmm.
Dan Hoffarth:
So it is really amazing. What we’ve done… When we first came down, we were drilling the shallower wells in 15, 14, 15 days. Those are now four to seven. We were drilling the Delaware, the deeper Delaware stuff. Some of those were 30, 25, 30 days. Those have been cut in half. And that’s just over the course of the last five years.
Peter Tertzakian:
Yeah. So that means that the cost of drilling a well is half of what it used to be. And this is just the cost of extraction goes down, the volume of extraction goes up because you have more surface area that is being covered by those really long lateral wells. So here’s the thing is that there’s a lot of people that are saying… they’re looking at the data, and they’re saying, “You know what? Looking at the data, I think that the Permian is maturing.
It’s starting to roll over in the production. We can’t get any more out.” And to be honest with you, I’m a little bit skeptical. I’ve seen what technology can do in my career. Certainly, you have on the ground. I’d like to get your thoughts because when you take it up to the highest level of the issue here with Canada’s position as a major oil supplier and Donald Trump’s saying, “We don’t need Canada’s oil.”
I don’t discount that. I don’t discount what he’s saying because actually the combination of technology ingenuity and stuff that, yeah, okay, they can’t replace 4.5 million barrels a day, or whatever it is we export to them, overnight. But I look at the set. They replaced the equivalent of all of Alberta’s production in less than 10 years. And the types of technologies you’re describing, I mean, I think there’s more to come, isn’t there?
Dan Hoffarth:
I have to agree with you, Peter. When we take a look at just the immense progress we’ve made in such a short period of time, and then you take a look at, “Okay, so is the best of the Permian drilled up?” Well, maybe the best of the locations have been tapped, but have they been properly drilled, and what’s left? And we take a look at the extraction… advancements and extraction processes.
Now again, look at the U-turn well. Look at the areas that we’re able to again, maximize the amount of volume of draw in the reservoir with a four-mile, a two-mile out, two-mile back. We maximize the amount of draw. There’s a lot of trapped… still a lot of trapped resources underground. And the secondary and tertiary drilling targets are still producing.
Peter Tertzakian:
I mean, I think what you’re talking about, Dan, is a recovery factor because I remember 20 years ago, I can’t remember what the number was, but the recovery factor here in the United States was very low.
In other words, you drill a well and what percentage of the reservoir do you actually extract before you have to drill another well? And I think it was like sub-10%, I can’t remember what the recovery was. It was very low, which means that further to your point is that 90% of the oil was still remaining in the ground, which you can go back with new technology and extract later on.
Jackie Forrest:
Actually, Peter, I do know the recovery rates. According to ExxonMobil, I think that’s a pretty good source. Darren Woods, CEO of ExxonMobil, says only 10% of the oil is being recovered from these unconventional resources. So here’s a quote. He thinks, there’s still a lot of technology to unlock what’s relatively immature in its development cycle and that ExxonMobil thinks they would like to try and develop the technology to double the oil recovery in the Permian.
That was a July 2023rd statement that they made. So, to your point, there’s a… all those wells that have been drilled, there’s the potential for a lot more oil to come out of those areas. All right, so let’s assume that we’re right and there is actually a lot more resource. Donald Trump wants to drill, baby, drill, and get the US to be even a larger oil producer. Do you think that’s possible if resource is no longer an issue, if you can take that out of the equation?
Dan Hoffarth:
You take a look at why Donald Trump would make some of these statements and why he would want to bolster the statements. And I look at it when we take a look at our oil field services segment as an industry in the US, it’s an interesting stat it pulled up. So the oil field services from an oil field services market perspective, Spears & Associates provided some data for us all at a recent AADE meeting in Midland. Saudi Arabia makes up 8% of the global market of oil field services.
The rest of the world is 70%, and the Permian Basin makes up 13% of the global oil field services market. When we take a look at that, it’s such a huge number. And when we take a look at the total impact on the US economy annually, oil and gas in the US, it’s $1.8 trillion of positive impact. The industry supports 12.3 million American jobs. So the concept of being able to improve upon those numbers supports this kind of drill, baby, drill.
But to get to that, I think we have to give a lot of respect to the oil companies and the manner in which they have responsibly been managing their spend, making sure that their return in their businesses. So that turns it back to maybe a drill, maybe, drill conversation. Are the oil companies going to just change their spending, their CapEx, and their forecasts in regards to just go in line with Mr. Trump’s statements? That remains to be seen. I just don’t see operators jumping to produce exponentially more oil at a reduced price.
Jackie Forrest:
Okay. Let’s talk a little bit about flaring. Because the Permian was known for high amounts of flaring, some data from Enverus, which I can share in the show notes, showed the volumes of the top five producers from 2021 to 2023 and actually showed not much improvement in terms of flaring over that time.
However, we do know that some of the majors like BP has committed to net-zero flaring by 2025. ExxonMobil committed to less flaring and reducing emissions. And of course, the majors are now the makeup of the operators in the Permian has really changed from these smaller companies like Pioneer to the majors like Chevron and BP and Exxon. So just being on the ground, do you think there’s a lot less flaring or it’s moving in that direction?
Dan Hoffarth:
That’s a tough one, being on the drilling side. So my comments here, add $4 to that, get yourself a cup of coffee. But I do feel like we see less flaring overall. There’s definitely a major component where the consolidation of the operators in the region, like you said, moving towards the majors and super major oil companies, they definitely have a more robust approach to their flaring programs and the manner in which they’re going to execute their production and drilling programs.
So, while the drilling phase of the business, we’re in the drilling phase, and it’s up to the Tommy Norris’ and their executives to develop and deliver the policies on flaring in the manner in which they complete and produce wells. But I do see a much more responsible behavior from the operators over the course of the last 10 years compared to flying over in a plane. And you take a look at the landscape, and you can see flares everywhere, I do say I see a reduction in a big way.
Jackie Forrest:
By the way, I don’t think Tommy Norris is going to be dealing with the methane flaring somehow.
Dan Hoffarth:
No. I don’t think I’ve heard the word methane in that show.
Peter Tertzakian:
Well, it’s been a lot of fun. Dan, thanks so much for joining us. Dan Hoffarth, CEO of Citadel Drilling. We got to have you back because there’s so many more questions than what goes on in your neck of the woods down in the Permian Basin is so consequential to us up here in the north. Thanks again.
Dan Hoffarth:
I really appreciate it. I wish you all the best and hope to see you soon.
Jackie Forrest:
And thanks to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.
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