West Texas shale play becomes most sought after oil in world
The shale boom has made Texas oil land some of the most sought-after in the world.Buying companies that already held the leases on the property became the best way to get in on the low cost oil boom. The break-even price on oil from this field is lower than that of Saudi Arabia. It is one reason why OPEC had to give up on its market share driven pricing.
Texas deals account for almost one-quarter of the total money spent on oil-and-gas acreage this year, according to year-end figures gathered by the energy research firm IHS Markit. Texas hasn’t represented such a large portion for 20 years, at least.
“Texas and the Permian Basin have proven to be a prime location,” said Chris Sheehan, IHS’s director of transaction research. “But the shale revolution has really unlocked additional resources.”
The driving force this year, Sheehan said, was economics. After oil prices crashed in February, U.S. drilling ground to a halt. As they slowly recovered, companies sent rigs to oilfields with the lowest costs and highest returns. West Texas’ Permian Basin became the hottest in the U.S. because its layers of underground hydrocarbons allowed companies to drill efficiently and access vast swaths of oil.
Companies wanted into that field. But, since the Permian is an old basin, most of its land was already leased. To get in, they had to buy in.
Some firms already there were too damaged by the downturn, and couldn’t muster the capital to develop even the most efficient field. So they sold their acreage. In other cases, larger, stronger companies bought weaker ones in order to access prime Permian land.
But the Permian boasted eight deals this year over $1 billion, by far the busiest region in the U.S., according to IHS. And the most expensive deals there focused on the Permian’s western lobe, the Delaware Basin.