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North Americas Hottest Shale Play - "Permian Basin"

Reprint from NGI's Shale Daily

The "great land grab," a hallmark of the early onshore unconventional renaissance, is making a big-time comeback in the Permian Basin, even with commodity prices still low.

The massive formation that straddles West Texas and southeastern New Mexico led acquisition activity in the first half of this year (see Daily GPI,Aug. 11). By any measure, the basin is in high gear to lead in the last six months -- and at sharply rising prices. Most of the buying is for leasehold in two sub-basins, the Delaware and the Midland, but the Central Basin Platform (CBP) also is seeing action.

Exploration and production companies appeared eager to place their flags in the legacy play during 2Q2016, with its myriad reservoirs now undergoing testing to tap oil, condensate and, to a lesser extent, natural gas, for decades. According to the U.S. Energy Information Administration, the Permian is set to easily eclipse every onshore region for oil production in August and September, with its natural gas output second only to the Marcellus Shale (see Shale Daily, Aug. 15).

Putting the spotlight on North America’s hottest play, NGI’s just released special report Permian: ‘The Mother Lode’ -- Texas Play Heats Up as Industry Looks to Get Back to Work takes a closer look at who’s doing what, where, and for how much in the play.

Resolute Energy Corp. CEO Nick Sutton, during a conference call in August to discuss 2Q2016 results, summed up the reasons for all things Permian.

"For comparative purposes, given the results from the wells that are drilling today in Texas, a single Permian Basin well adds more production to the company than all of the Wyoming assets that we sold in 2015," Sutton said. High volumes and relatively low lease operating expenses (LOE) mean "production from our Permian Basin wells is significantly more profitable than our legacy operations."

Of all the U.S. regions that Plains All American Pipeline LP serves today, the Permian is "the one area that appears to be the most resilient, if not actually kind of over-performing a little bit," CEO Greg Armstrong said during a second quarter call. "The results from the wells that are being reported are stronger."

Permian production could be even better, he said, if global supply and demand were in sync.

"We're all going to have to monitor the demand...in the world for crude oil in general. And if the answer is we're the swing producer, the Permian is the best place to get it..."

Permian Drilling for ‘Next 100, 150 Years’

Said Permian heavyweight Pioneer Natural Resources Inc. CEO Scott Sheffield in July: "The Permian is the mother lode. You factor in 4,000 feet of shales with 12 to 14 zones to play with...We’ll be drilling that for the next 100, 150 years" (see Shale Daily, July 20).

Lower well costs, higher estimated ultimate recoveries, and solid internal rates of return are fait accompli in the Permian. Other parts of the U.S. onshore remain economical, but infrastructure provides the best economics.

Legacy oil and natural gas operations have been underway for decades in the Permian. In recent years, with the advent of unconventional drilling techniques and the rise in oil prices, the long-drilled land has become even more valuable.

Initially the acquisitions focused mostly on the Midland sub-basin -- and many deals still target the formation. Each of the three sub-basins are attracting drill bits, with the reservoirs within each -- including the Wolfcamp, which traverses all three major basins -- drawing interest. Benches within the Spraberry and Cline also are high on explorers’ lists.

The Permian is the center of the "great land grab" today, said NGI's Patrick Rau, director of strategy and research. "My biggest takeaway is just how quickly acreage prices have been rising in the Delaware Basin."

Delaware rig counts accounted for 21% of the U.S. total. This rise becomes especially pronounced since the 2014 price rout and most recently, for the week ending Aug. 19, 2016, the combined Midland and Delaware rig counts accounted for 39% of the U.S. total."

Senior Editor | Houston, TX

Carolyn Davis joined the editorial staff of Intelligence Press Inc. in Houston in May, 2000. Prior to that, she covered regulatory issues for environmental and occupational safety and health publications. She also has worked as a reporter for several daily newspapers in Texas, including the Waco Tribune-Herald, the Temple Daily Telegram and the Killeen Daily Herald. She attended Texas A&M University and received a Bachelor of Arts degree in journalism from the University of Houston.