US oil producers face new growth challenges in top oilfield (Permian)

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NEW YORK/HOUSTON, March 27 (Reuters) - U.S. oil producers are grappling with geological limits to production growth as the country's top oilfield ages and produces more water and gas and less oil - and may be nearing peak output.

The Permian basin was the centerpiece of the shale revolution that began nearly two decades ago and spurred the U.S. to become the world's top oil producer, stealing market share from the Organization of the Petroleum Exporting Countries (OPEC) and other top producers.

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The Permian is pumping 6.5 million barrels per day (bpd), a record level and nearly half the all-time high 13.5 million bpd of crude that the U.S. produced in December.

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Relentless drilling to reach record production has exhausted the core of the Permian's two largest sub-basins: nearly two-thirds of the Midland formation's core has been drilled, and slightly more than half in the Delaware formation, according to data from analytics software company Novi Labs.

"We've never been in a position before where we were on the back-half of the inventory story of a burning basin," Novi Labs head of research Brandon Myers said.

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"We think that between 2027 and 2030 it's likely that the U.S. will see peak production, and after that some decline," Occidental CEO Vicki Hollub said earlier this month at an industry conference in Houston.

Harold Hamm, founder of shale producer Continental Resources and a key figure in the U.S. shale boom, agrees. He said at the same conference that U.S. oil production is already beginning to plateau.

For now, output is still rising.

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Producers are dealing with rising levels of water and gas per barrel produced, which is slowing growth and driving up costs.

In the past decade, gas output in the Permian has increased eight-fold, while crude production rose six-fold, according to a review by the U.S. Energy Information Administration.

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Breakevens to drill a new well in the Permian averaged $65 a barrel in 2024, up $4 on the year, according to the Federal Reserve Bank of Dallas.

Less desirable acreage breakevens can hit $96, per Novi Labs, some $26 above where a barrel of crude is trading.

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Even as producers face higher gas and water output, the sheer volume of oil they can pump justifies production, said Clint Barnette, director of geology at Indigo Energy Advisors, a unit of advisory firm Efficient Markets.

"It's how the Delaware basin stays economic even though those wells produce six to seven times the amount of water as they do oil," he said, referring to the Permian's second biggest sub-basin.

"I would never bet against the Permian," Barnette said.

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