Even at high prices for land in the Permian Basin, the productivity makes it worth it
North American Shale Magazine:
Acreage in the Permian Basin of West Texas and New Mexico may be expensive, but it is worth every penny. “The Permian deserves every ounce of investor love,” said Mike Kelly, managing director and senior analyst at Seaport Global Securities LLC. Kelly said that his energy research and analysis team ranks the companies it follows every quarter and for the past several quarters, 8 out of the top 10 companies have been linked to the Permian. Oil and gas development there provides high returns and high growth for the exploration and production companies that invest there.The multiple layers of oil and gas zones makes the Permian different from other prospects and it makes it competitive with some of the largest oil plays in the world.
Although public entities and private equity-backed teams have flocked to the Permian for the past eight months for several reasons, Kelly believes there are two that drive dollars to the play. Within the Permian Basin there are multizones that can all deliver excellent returns. This year, work will be done by operators in the area to prove out that some zones can produce wells that offer 3 million barrels EURs (estimated oil recoveries). Wall Street is following that work closely, Kelly said, to ensure that all the money spent and the deals that went down in the past 8 months were worth it. For Kelly and his team, internal projects show that investment into Permian acreage that seems high now may actually seem cheap in the future.
For a 750 mboe well, the price per acre is roughly $32,000. For a 1,000 mboe well, the price per acre is $54,000. But, with the prove-out period of multizones continuing this year and the evolution of enhanced completions, acreage in the play could someday reach $223,000 per acre. “If things play out in the Permian, you can justify paying a lot more than you are paying today,” Kelly said.
Bill Markos, managing director of Jeffries LLC, also shared the sentiment of Kelly regarding the Permian. During his presentation at Hart Energy’s DUG Permian 2017 event held this week in Fort Worth, Texas, Markos said the Permian is currently at the center of the oil and gas universe. For every one mile section of land there, he explained, there is roughly one mile deep of oil. The work being done there to enhance completions and bring more oil out of the ground per well is only in the second or third inning of development, he added.