Permian Basin poised for 'surge' in production as large oil and gas deals continue
Adrian HeddenLarge oil and gas land sales in the Permian Basin continued as fuel demands remained high this week in response to global market tensions and the world’s recovery from COVID-19.
Earthstone Energy, based in the Woodlands, Texas, became the latest to announce such a deal – $638 million to acquire assets in the region from Bighorn Permian Resources mostly in the Midland Basin, the eastern sub-basin of the Permian.
The deal’s closing on April 14 marked a decline from the $770 million announced previously but was expected to add significantly to Earthstone’s recent entrance into the Permian, following its $604 million purchase of assets in the western Delaware sub-basin last December from Chisholm Energy Holdings.
That deal added a daily production capacity of 35,500 barrels of oil per day, while the company operates two drilling rigs each in the Delaware and Midland basins.
Earthstone Chief Executive Officer Robert Anderson said the Bighorn deal was intended to increase cashflow to the company while growing its presence in the Permian Basin – the U.S.’ most active oilfield.
"Combining the recently closed Chisholm Acquisition and its high-quality inventory in the northern Delaware Basin with the Bighorn Acquisition and its low-decline, high free cash flow production base in the Midland Basin has created significant incremental scale for Earthstone,” Anderson said.
“We believe that the balance of high return drilling inventory and strong free cash flow production base within Earthstone creates an optimal opportunity for value creation as we continue our 2022 operating and capital plan.”
More:Oil and gas air pollution controls approved by New Mexico officials, take effect in spring
He said the company hoped to continue increasing its Permian Basin operations, in a time of growth in fossil fuel markets.
"Our near-term focus will be to continue integration efforts on both the northern Delaware Basin assets and the newly acquired Midland Basin assets,” Anderson said.
“We expect to continue our pursuit of additional scale through accretive acquisitions that we believe will result in continued improved cost structure and creation of shareholder value, while always keeping our balance sheet strength as the top priority."
More:COVID-19 recovery meant more oil spills in New Mexico, study says. What can the State do?
Permian Basin could soon see oil and gas boom
Oil prices climbed back into the triple digits Monday morning to about $107 per barrel, per data from the Chicago Mercantile Exchange, after falling last week into the $90s, but remaining well above pre-pandemic prices in the upper $60s.
Prices peaked this year at $123 per barrel on March 8, per historical data from Nasdaq, amid the Russia's invasion of Ukraine.
Russia, a global energy leader, was subsequently removed from international markets, put pressure on U.S. producers coupled with increased demand as COVID-19 appeared to subside.
Prices were expected to remain at more than $100 per barrel through the fall, with the Chicago Mercantile Exchange predicting a gradual decline in futures to $100 a barrel by November and down to $98 a barrel in December, then continuing to drop by about $1 a barrel for each following month.
More:New Mexico has a month to apply for $25 million to clean up abandoned oil and gas wells
Higher oil prices meant sustained growth in operations as oil and gas rigs increased last week in the Permian Basin region, per the latest data from Baker Hughes.
As of Friday, the basin added two rigs for a total of 334, records show, while Texas added four rigs for its total of 346.
New Mexico dropped one rig for its total of 95 rigs, Baker Hughes reported, but had 25 more rigs than its total of 70 reported a year ago.
More:Fluctuating oil prices do not hamper February oil and gas tax collections for Eddy County
A record 904 drilling permits were issued in March for Permian Basin oil and gas operators potentially meaning an upcoming “surge” in fossil fuel production, per a report from global energy analytics firm Rystad Energy.
The permits were mostly for new, horizontal drilling wells in the region, with between 188 and 227 issued weekly since March 7, an average of 210 for the week ending April 3.
That’s the highest average reported over a four-week period in the Permian, read the report, and Rystad’s Head of Shale Research Artem Abramov said it could mean operations were poised to boom and drive up supplies for next year.
“This is a clear signal that operators in the basin are kicking into high gear on their development plans, positioning for a significant ramp-up of activity level and an acceleration in the speed of output expansion over the next few months once supply chain bottlenecks ease,” Abramov said.
“The surge in permitting activity positions the industry for continuous rig count additions in the second half of 2022 and foreshadows a significant increase in supply capacity from early 2023.”
Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.