48.1 F
Fort Worth
Sunday, November 29, 2020
Energy At $60,000 an acre, Permian may be too ritzy as crude rises

At $60,000 an acre, Permian may be too ritzy as crude rises

Other News

Closing prices for crude oil, gold and other commodities

The Associated Press Benchmark U.S. crude oil for September delivery rose 31 cents to settle at $41.60 a barrel Monday. Brent crude oil for...

Trump to discuss energy, tour oil rig, raise money in Texas

By DARLENE SUPERVILLE Associated PressWASHINGTON (AP) — President Donald Trump will shift his focus to American energy dominance during a stop in Texas later...

Basic Energy Services makes organizational changes

Fort Worth-based Basic Energy Services, Inc. (OTCQX: BASX) in late May announced the implementation of changes to the organizational structure of the company, reducing...

Texas oil producers were cutting output before Railroad Commission chose not to, Commissioner Christi Craddick says

By Cassandra PollockMay 12, 2020 Texas Railroad Commissioner Christi Craddick on Tuesday doubled down on the agency’s recent decision to not cut oil production and...

Record prices for drilling rights in the Permian Basin, the most fertile U.S. shale field, are prompting oil companies and private equity investors to look elsewhere for the next big gushers.

Explorers eager to tap the basin’s mile-thick stack of oil-soaked rock layers have paid as much as $60,000 an acre. That marks a 50-fold explosion in deal prices over four years, according to Wood Mackenzie Ltd. It also pushes the cost 10 times higher than in the Bakken of North Dakota.

The backlash is just beginning. BP Plc, the U.K.-based supermajor, has focused its shale-drilling efforts on the other end of the hemisphere, in Argentina’s Vaca Muerta region, while Sanchez Energy Corp. has targeted the Eagle Ford of South Texas and Newfield Exploration Co. has acquired rights in the Stack field in northern Oklahoma.

As far as the Permian is concerned, “companies that don’t already have a foothold are seeing valuations that are out of control,” said Gabriele Sorbara, an analyst at Williams Capital Group LP in New York. “They can’t get involved.”

The Permian runs 250 miles wide and 300 miles long across West Texas and southeastern New Mexico. It’s a gold mine for oil drillers, not only because it has many more layers of oil-rich stone, but also because each seam is 10 or 15 times thicker than those in other shale formations such as the Bakken or Eagle Ford.

That means more opportunities to strike oil, and more pay zones. Permian wells can generate profit with crude selling for less than $40 a barrel, a threshold unheard of in other shale fields.

That’s why drillers already there have been boosting their efforts. Occidental Petroleum Corp., the biggest operator in the Permian, said on Thursday it may double output in the region during the next four years. The Permian is Occidental’s “foundation” and “growth engine,” Chief Executive Officer Vicki Hollub said in a conference call.

Now, though, prices have risen above $50 a barrel on the strength of a pledge by the Organization of Petroleum Exporting Countries and 11 other nations to enact output cuts. OPEC implemented 90 percent of the promised reductions last month, the highest compliance rate in the cartel’s history. Higher prices mean broader opportunity, opening new promise at fields where it costs more to produce oil. West Texas Intermediate crude rose 2 percent to $54.05 a barrel at 12:40 p.m. on Friday in New York.

Prime candidates to capture the Permian’s overflow are the Scoop and Stack regions of Oklahoma, the Bakken, the Haynesville Shale in Louisiana and the Eagle Ford. As for the Permian, uncertainties about whether it holds enough crude to justify skyrocketing prices is reminiscent of “the Internet circa 1998,” said Peter Pulikkan, a Bloomberg Intelligence analyst.

“We’re in the second inning of a Permian bubble,” Pulikkan said. “Some players are starting to look at other areas that may offer better risk-reward” ratios, given the buy-in.

Emboldened by a rejuvenated oil market where prices jumped 90 percent in New York in the past year, the rush to snap up Permian assets accelerated as 2016 wound down, with companies such as Exxon Mobil Corp. and private equity firms like Talara Capital Management LLC leading the push. By year’s end, the region had absorbed one of every four dollars spent globally on oilfield acquisitions, according to Wood Mackenzie, the Edinburgh-based research house.

However, the attractiveness of the Permian may already be fading. Less than half the respondents in a Bloomberg Intelligence survey said the Permian will draw the most acquisition interest in the coming year. That’s down from 57 percent in 2016.

Another sign of weakness for the region may be gleaned from the performance of Jagged Peak Energy Inc., a Permian explorer that had to cut the price and size of its initial share sale last month, and has fallen almost 3 percent since its debut.

“It’s all about what you pay to get into an asset compared to how much you can get out of it,” said David Zusman, chief investment officer and co-founder of Talara, which has $600 million under management. The firm began investing in Permian driller Caza Oil & Gas Inc. in late 2014 and took control of the company at a bargain price the following year during the depths of the market collapse.

Although major Permian operators including Exxon, Pioneer Natural Resources Co. and Anadarko Petroleum Corp. are “in it to win it” and unlikely to alter course, “new entrants may be turned off and look elsewhere,” said Joseph Triepke, founder of Infill Thinking, a Dallas-based oil research firm, and a former analyst at Citadel LLC’s Surveyor Capital unit.

“Oklahoma is the logical place to go” because of the huge potential in the Scoop and Stack regions, Triepke said. “Those are the places that will benefit most from the Permian bubble.”


Oh hi there 👋
It’s nice to meet you.

Sign up to receive awesome content in your inbox.

We don’t spam! Read our privacy policy for more info.

Latest News

Venezuela judge convicts 6 American oil execs, orders prison

By SCOTT SMITH ASSOCIATED PRESSCARACAS, Venezuela (AP) — Six American oil executives held for three years in Venezuela were found guilty of corruption charges...

Fort Worth firm acquired by Abilene-based Petrosmith

Abilene-based Petrosmith, a leading provider of production equipment and oilfield tubular goods, has acquired the assets of Wellflex Energy Solutions LLC, an engineering, procurement...

Oil companies snag Gulf of Mexico waters for offshore drilling in last bid before Biden transition

In the last opportunity for oil companies to bid on federal Gulf of Mexico waters under a Trump administration, the federal government on Wednesday...

Texas official selected as vice chairman of Interstate Oil and Gas Compact Commission

Railroad Commissioner Wayne Christian was selected to be vice chairman of the Interstate Oil and Gas Compact Commission (IOGCC) at the organization’s virtual meeting....

Alaska loses 3,000 oil, gas jobs during pandemic, price drop

ANCHORAGE, Alaska (AP) — The Alaska Department of Labor and Workforce Development reported that the state has lost more than 3,000 jobs in the...