Oil & Energy Investor by Dr. Kent Moors

The Permian M&A Heats Up – and How You Could Profit

by | published April 24th, 2019

The Permian Basin straddles the border area between West Texas and Eastern New Mexico. It is comprised of three primary production basins – in order of size, Midland, Delaware, and the Marfa.

It is also the focus of an intense amount of merger and acquisition (M&A) talk surrounding an increasing number of crude oil and natural gas producing companies.

For good reason.

The Permian is a prolific extraction area, currently the third largest oil basin in the world by production volume. It is the heir apparent in U.S. oil and – along with some assistance from the Eagle Ford in South Texas and others – certain to fuel an increase in American exports to higher-priced foreign markets.

As I have discussed in the past, moving substantially more Permian volume into either the domestic market or export is constrained by pipeline and port infrastructure limitations. Both of these are being addressed, as is the lifting of more associated natural gas existing along with crude oil.

This confluence of factors has begun to reduce the price of Permian oil.

Such a discount to the market price is an inevitable result of supply caught in a network of pipeline bottlenecks. This hits operators more forcefully, since they receive a wellhead price. This is the charge for the first arms-length transfer of product between producer and distributor, also at discount to the market price.

Nonetheless, the current environment is far more favorable than the last time an M&A wave hit

The Tale of Half-Cycle Fields

by | published April 23rd, 2019

Today, I will address a forward field development problem emerging in the U.S. It will hardly lead to a shortage of either crude oil or natural gas, but it may well increase the price.

As usual, first we need to consider some background.

As the price of crude oil trends up and the price of natural gas moves down, a major difficulty emerges, becoming a more serious concern in high-production basins like the Permian of West Texas and Eastern New Mexico.

The uninitiated reader might regard this as obliging an obvious choice – produce the oil not the gas. Unfortunately, that misses the realities in the field.

Much of the natural gas present exists as associated gas. That is, it is there along with the oil a company is targeting. Unless the producer deals with the gas, the overall pressure declines in a reservoir. That can significantly lessen the oil produced.

So, the associated gas must be dealt with in some way.

In the old days, unwanted gas would simply be flared, that is, burned off. When I was growing up in Oklahoma, I would be fascinated by the fiery image at night. It looked like the entrance to Hades.

Less scrupulous operators would go one step further and vent the “waste gas” directly into the environment. I last witnessed this unsavory practice during a visit several years ago to production facilities far up river on Ecuadorian tributaries of what would later become the main branches of the Amazon.

I had never before witnessed what would confront me as we turned a bend in the river one morning