Permian Opportunities | Russell T. Rudy Energy LLC
Of the major domestic shale oil plays, only the Permian Basin of West Texas and Southeast New Mexico continues to increase production. “World Oil” cites a recent study by consulting firm IHS, which notes that the area is a hotbed of deal making as the opportunities there are the best currently available to shale operators. More than 35% of the deals consummated in 2015 were in the Permian.
At first blush this would seem unlikely as over 50% of Permian liquids are produced by only 10 operators. However, at the other end of the spectrum, 650 companies are responsible for less than 3,000 barrels of oil per day. Consequently, IHS sees this is a great opportunity for consolidation and expects a wave of deals by the second half of 2016. This, and the fact that the Permian is one of the few places still offering the possibility of economic returns at depressed prices, makes the area ripe for merger and acquisition activity.
Analysis performed by IHS indicates that because the profit potential in the Permian is superior to other shale oil plays, transactions there demand a premium. Further, as operations in the play are consolidated, per unit operating costs will come down and profits will increase.
These realities are not lost on operators. Apache is shifting its focus to the Permian Basin, while Pioneer splits its resources between the Basin and the Eagle Ford shale of South Texas. Devon, with its large position in the Barnett shale, is nevertheless diversifying into the Permian.
The Permian Basin has been a premier play for many years with more than 185,000 producing wells. However, 18,000 of these are recently drilled horizontal wells. Since the area has been extensively explored and developed, much of the acreage is held by existing production. This means that anyone who is trying to break into the Permian game has but one : acquisition, even if it means paying a premium.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/01/08/economics-and-opportunities-driving-consolidation-in-permian-basin-ihs .
