Thursday, November 12, 2020

Wow, We Talked About This Two Years Ago -- Or Whenever It Was -- Folks Overpaid To Get Into The Permian -- November 12, 2020

From SeekingAlpha:

Summary:

  • Drilling rights in the Permian Basin averaged $24K/acre in recent deals, down 67% from 2018, and the average price across all U.S. shale has plummeted to ~$5K/acre from $17K two years ago, Rystad Energy reports. 
  • The plunge in acreage prices is a sign of the crisis facing U.S. oil and gas explorers, who are trying to survive a pandemic-driven decline in crude demand after more than a decade of debt-fueled production growth. 
  • In ConocoPhillips' proposed $9.7B purchase of Concho Resources, Concho's drilling rights were valued at $10,471/acre compared with $75,504/acre for Concho's 2018 acquisition of RSP Permian, according to Bloomberg
  • Industry-wide costs for drilling and completing wells will probably drop as much as 5% next year because of consolidation, increased standardization and lower service costs, Rystad says.

5%? That's a rounding era. Means nothing. It's that third bullet that's staggering.

Flashback: December 3, 2018 -- the various Bakken periods

Bakken 2.0: 

  • October 19, 2016: the beginning of Bakken 2.0
    • the event that triggered the Bakken 2.0 designation: the SM Energy announcement that it was selling some Bakken acreage/assets to Oasis
    • it appears Permian Shale 2.0 began with the WPX, Noble, and XOM announcements regarding acquisitions in the Permian -- late 2016/early 2017

From the outside, from an investment point of view, operators started getting interested in unconventional oil in the Permian in late October, 2016. 

From my perspective, and I talked about it often on the back in 2017 - 2018, operators really overpaid to get into the Bakken. Now we have a contributor over at SeekingAlpha showing just how much they overpaid.  

But look at that: Concho's drilling rights were valued at $10,471/acre compared with $75,504/acre for Concho's 2018 acquisition of RSP Permian.

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