Permian Driving M&A Activity | Russell T. Rudy Energy LLC
“Rigzone” reports that 25% of worldwide merger and acquisition (M&A) activity relates to deals involving the Permian Basin of West Texas and Southeast New Mexico. Skip York, with Wood Mackenzie, refers to this frenzy of activity as “Permian Panic” among operators who are afraid of missing out on the action and not being able to take advantage of the next oil upswing.
So far, Permian M&A activity has involved small, “bolt on” acquisitions by operators who are already involved in the play and want to expand their presence. However, there have recently been transactions involving companies who were not already in the basin, but want to be.
Significant recent deals involved SM Energy, Concho Resources, and EOG Resources. The latter bought Yates Petroleum for $2.5 billion in stock and cash. Already the major player in the Eagle Ford shale of South Texas, EOG can now expand its presence in the Permian more efficiently and with less capital.
York observed that “When people reference the return of tight oil, they’re talking about the Permian Basin.” He went on to say that producers are attracted to the play because of its upside, advances in shale technology, and size. While the Permian is one of the most established oil provinces in the nation, it is a relative newcomer to shale when compared to the Bakken of North Dakota and the Eagle Ford. More importantly, the Permian offers the most upside potential.
The Permian Basin is also enjoying the benefits of shale technologies developed and perfected in the Bakken and Eagle Ford, making investments less risky. The sheer size of the play, and thick, stacked, pay zones make the area especially attractive.
The two major areas within the Permian are the Midland and Delaware Basins. Colin Rice, also with Wood Mackenzie, opines that as operators learn more about the geology of the Delaware, upsides there will continue to grow. Rice also thinks that the collaborative nature of operators in the Permian Basin is allowing best practices to evolve quickly and costs to come down.
While the Permian Basin has enjoyed lower service company costs when compared to other shale plays, Wood Mackenzie feels that this might be only temporary as demand for these services continues to increase. However, lower costs were not what attracted oil and gas operators to the area in the first place.
Wood Mackenzie sees future growth in other shale plays, but predicts that the Permian will be the marquee of the future.
To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=146544&utm .
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