Permian Basin acquisitions are riding a wave of popularity, at least as measured by M&A announcements, drilling rig additions, and capital markets activity. Given the dramatic increase in well productivity, falling well costs, and promise of stacked pay opportunities, it is no surprise that basin production has held strong relative to other basins despite the weak price environment. It also comes as no surprise that basin producers continue to add acreage in the play to their portfolios. Last week two more operators acquired Delaware Basin acquisitions. Callon Petroleum (NYSE:CPE) announced its acquisition of acreage on December 13, adding 16,098 net acres in Ward, Pecos, and Reeves counties in Texas for a purchase price of $615 million. Diamondback Energy (NASDAQ:FANG) announced a $2.40 billion acquisition of 76,319 net acres in Pecos and Reeves counties one day later. Given the hype around the Permian, BTU Analytics reviewed some of the well performance data in the area.
Looking at the oil IP rates in the counties that were part of the acquisitions shows that wells are becoming stronger in the area, with the largest improvements being witnessed in the 2016 data.
Longer lateral lengths can also help explain some of the increases in well productivity. As operators become more familiar with the rock, longer laterals can be drilled more efficiently, helping to boost oil output rates considerably. Lateral lengths have been increasing for the most part in the given counties, with the exception of slight decline in overall average in Reeves county.
Looking at the areas around the counties of interest, drilling and completion costs have dropped nearly 20% from 2013 to 2016, despite increasing lateral lengths and completion intensity (Proppant Demand on the Rise), to just under $7 million per well. The combination of increasing IP rates and declining well costs have contributed to a significant improvement in basin economics. According to BTU Analytics’ E&P Positioning Report, average wellhead breakevens in the Delaware TX region have fallen just over $20/bbl from 2013 to 2016, down to $51.80/bbl, with the top 10% of wells breaking even at or below $30.00/bbl. Given these improvements, it’s no wonder that operators are jumping on the opportunity to add Permian acreage to their portfolio, and more are expected in 2017.
To see more on the economics for individual operators in the Permian basin, as well as other plays across the US, check out BTU Analytics’ E&P Positioning Report.
