US domestic oil production remains in a deep two-year slump because of the low oil prices. However, there are several multibillion-dollar deals showing sparks of recovery in the shale fields of the Permian Basin straddling Texas and New Mexico.
The U.S. has added 482,000 barrels of oil per day since mid-October, an increase of more than 5 percent that’s been driven in large part by burgeoning output out of that west Texas shale formation. The OPEC – Russia deal to cut production has increased oil prices by $10 per barrel and provided room for the US to increase supply.
Exxon Mobil announced on Tuesday that it was acquiring 275,000 acres in New Mexico from the Bass family of Fort Worth for up to $6.6 billion in stock and cash. The deal came one day after another oil producer, Noble Energy, agreed to pay $2.7 billion to buy Clayton Williams Energy, giving it 120,000 oil-rich acres nearby in West Texas.
The deals are among the largest of more than $25 billion of mergers and acquisitions in the Permian since June, representing roughly one-quarter of the total spent by the oil and gas industry on such transactions worldwide over the last year. Companies like Anadarko Petroleum, SM Energy and EOG Resources are selling assets in other domestic fields to snap up parts of several fields that make up the basin, which is roughly the size of South Dakota.
“The Permian Basin has now become the crown jewel of the world’s oil and gas industry,” said Scott Sheffield, the executive chairman of Pioneer Natural Resources, a large producer in the area.
The Permian received new life about a decade ago when drillers began experimenting with hydraulic fracturing to blast through shale fields that course through the region. Exploration by Pioneer Natural Resources and a few other companies found multiple layers of shale — six to eight oil-rich zones, one on top of the other, like a layer cake — that offer companies the opportunity to drill through multiple reservoirs on the same real estate.
The geological virtues of the Permian, along with an existing robust array of pipelines, have made the basin the cheapest to develop of any shale oil field in the country. The break-even price for the best acreage in the basin is as low as $40 a barrel, where in most other shale fields the break-even price can be $10 to $20 higher. With acreage prices for oil properties multiplying by 10 times or more since 2012, oil executives are starting to talk of “Permania.
SOURCES- EIA, NY Times, American Interest, BTU Analytics