The biggest oil field in the USA turns up new surprises everyday as explorers discover so many rich pockets of crude that make investors turn a blind eye to the current industry slump in favour of ambitious drilling and acquisition programs.
In the past four months itself, the field has seen $12 billion worth of action in terms of acquisition capital, even though field analysts are still at work. The Permian land rush reached a new crescendo last week when RSP Permian announced a $2.4-billion deal to buy Silver Hill Energy Partners’ fields in the Permian’s western wing, the Delaware basin.
“Capital moves to the lowest-cost plays and in today’s price environment, the Permian is the last man standing,” says Gabriele Sorbara, an analyst at Williams Capital Group Plc. “In some spots, people can break even at $20/bbl or $30/bbl.”
Oil producers crippled by the worst oil-market rout in decades have been shutting down exploration in marquee oil provinces from the Gulf of Mexico to Africa and flocking to West Texas, where the Permian’s deep layers of oil-soaked rocks present one of the few profitable drilling horizons in the world today. Dallas-based RSP, which went public less than three years ago, said some of the wells it’s acquiring are gushing so much crude that they’re posting 70% rates of return. Last month, Apache Corp. stunned the oil industry when it discovered the “immense” Alpine High field in a backwater area of the Permian long written off by other drillers as a bust.
The buying spree for Permian assets is expected to persist in coming months, Sorbara said. Deals are currently lucrative to the investors because the acquisitions are seen as ultimately worth the temporary pain. Pure-play Permian drillers are trading at a premium to rival companies that have only some or none of their exploration in the region, said the team of Barclays analysts.
“The Permian basin has undergone a wave of consolidation over the past couple of years,” the Barclays analysts wrote in an Oct. 17 note to clients. “We expect this trend to continue, driven by bolt-on acquisitions in the Midland basin, and larger resource capture in the Delaware basin."
And as all the other fields struggle to maintain production, profit and prestige, Permian stands as strong as Atlas, the last of the titans, with perhaps the entire American O&G world on its shoulders. It would indeed be interesting to see how this matter concludes.