For The Archives -- EOG, The Permian, Break-Even Prices -- April 23, 2017

I've been saying this for quite some time, most recently March 14, 2017: the prices that folks are paying for mineral rights in the Permian don't make sense. Everybody more knowledgeable than I am and with a whole lot of experience tell me I'm wrong. Today I stumbled across this article while following up another set of links. I had not seen this article before. It's from Art Berman (consider the source) back on December 18, 2015.

Right or wrong, the fact that the price of oil is trending back toward $50 has to be a bit concerning for companies who bought into the Permian during the $40,000 / acre buying frenzy and folks thought oil was trending back toward $70.

For the archives, from the Art Berman article linked above:

Less than 2 percent of Permian basin tight oil wells are commercial at $30 per barrel oil prices.

Sorry about that. I know that many believe that U.S. shale and tight oil plays are commercial even at current low oil prices but data on the Permian basin and Bakken plays simply does not support that belief.

To make matters worse, Pioneer and EOG have made outrageous claims about Permian basin reserves in their 3rd quarter 2015 earnings reports that no sensible person should believe. Statements like these simply add to the mistaken idea that tight oil plays get a pass on the laws of physics and economics and that somehow the USA is going to beat Saudi Arabia as the low-cost “swing producer” of the world. I wish that were true but trust me–based on data, that’s not going to happen.

The Permian basin is one of the oldest producing areas in the United States. It has been thoroughly drilled and is in a hyper-mature phase of development. The Spraberry, Wolfcamp and Bone Springs plays that Pioneer and EOG are pursuing (Figure 1) are really secondary recovery projects in which horizontal drilling and hydraulic fracturing have replaced water and CO2 injection methods used in the past. Few new reserves should be expected. Most of the claims that these companies make are really about higher recovery efficiency of existing reserves.

It should be noted that his lede begins with "$30-oil" where it was some years ago but oil is now back up to $50, so "stuff has changed."

This link came when following the first link and then the second link below (previously posted):

• EOG's monster well in the Permian -- Filloon, April 23, 2017
• EOG's monster well in the Permian -- Motley Fool, April 12, 2017