August 17, 2018 - 9:04 AM EDT
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Billionaires Further Pushing Permian Production Prospects Amid Oil Rally

Renowned billionaires Stanley Druckenmiller and George Soros recently both signalled an affinity for the recovering oil industry, adding significant petroleum positions to their portfolios this month. With the global energy industry further rallying away from the worst crude crash in a generation, it appears that the sector is drawing favourable attention again—especially with strides being made in the Permian basin.

Among the companies that have attracted the wallets of Soros and Druckenmiller’s Duquesne Family Office, both have invested in Devon Energy (NYSE: DVN). However, the attraction and spotlight on the Permian in the coming months should also include companies such as Apache Corporation, Diamondback Energy (NASDAQ: FANG), Occidental Petroleum Corporation (NYSE: OXY), and Permex Petroleum Corporation (CSE: OIL).

Both billionaires bought into oil rally in the second quarter. Soros retooled his energy holdings by raising stakes in Devon Energy and pipeline giant Kinder Morgan, and buying other energy stocks including Chevron Corp., while dissolving his stake in the VanEck Vectors Oil Services ETF, and cutting his exposure to Canadian Natural Resources and Williams Companies.

While Soros moved away from VanEck, Druckenmiller’s Duquesne bought 1.68 million shares of the ETF, while also adding the Energy Select Sector SPDR Fund, and shares in Devon and other energy companies including Marathon Petroleum.

The moves were all quite significant, bolstering a wave of confidence across the sector. However, with many of the moves made by the billionaire duo involving Permian focused entities, the regions other players received a positive rub off.

Other majors, such as Occidental Petroleum received small-but-noticeable gains on the market, as they continue to seek Permian production boosts, such as through their partnership on specific projects with small cap Permex Petroleum. The relative newcomer stealthily accumulated what is a proportionately respectable 6,500 acres of oil and gas holdings in the Permian Basin of west Texas and Delaware Basin of southeast New Mexico, with plenty of opportunity to economically and steadily increase production.

The Permian straddles west Texas and southeast New Mexico, and thanks to ongoing development and support from the market has become the biggest shale oil producing region in the USA, that could soon join the ranks of Russia and Saudi Arabia as one of the Top 3 regions oil producing regions in the world.

PERMIAN PRODUCTION MOVERS

Apache Corporation (NYSE: APA)

Earlier this month, Apache announced it had posted $195 million in profit, attributing much of the rising revenues for their second quarter to an increase in volumes from West Texas’ Permian Basin. The Permian alone accounts for nearly 45% of Apache’s global production, and that number is growing. The company is currently producing more than 200,000 boe/d from the Permian, including more than 30,000 barrels per day from its Alpine High discovery in the southern Permian. To further signal its focus being heavily weighted toward the Permian, Apache recently agreed to divest some of its UK Central North Sea properties to Neptune Energy Group. Moving forward, Apache has hinted that it will allocate approximately 70% of its capital budget to the Permian Basin over the next three years.

Devon Energy (NYSE: DVN)

Moving in the other direction, Devon Energy recently announced a deal with Carrizo Oil and Gas (NASDAQ: CRZO) to divest some of its Permian portfolio. For a price tag of $215 million in cash, Devon is selling 9,600 acres of its noncore properties in the region. The properties are located in the western portion of the Permian, in the Delaware Basin. Most of Devon’s drilling activity is in its core areas of the Delaware Basin and northwest Oklahoma’s STACK play, but Devon executives have made it clear that they plan to sell off more non-core assets throughout the company’s footprint. Devon continues to show promise within the Permian, including with recent Bone Spring locations that showed significant promise, which improved the upside to other neighboring operators in the area.

Diamondback Energy (NASDAQ: FANG)

Not shying away from the Permian rush, Diamondback Energy recently agreed to buy shale rival Energen Corp in an all-stock deal valued at $9.2 billion. The deal gives Diamondback an expanded footprint in the country’s largest and fastest growing oil field, following less than a week from its other Permian deal to acquire Ajax Resources LLC for $1.2 billion. The deal valued Energen’s properties at approximately $65,000 per acre, making for them to be among the highest valued acreage in the last several years. The Energen deal was strategic, as it united holdings within the same areas of the Permian, which could potentially allow for longer horizontal wells, shared labor, and equipment.

Occidental Petroleum Corporation (NYSE: OXY)

Looking to ramp up its growth in the Permian, Occidental recently increased its capital budget by $1.1 billion for high-return, short-cycle oil and gas projects, having hit its low oil price breakeven goals a full six months ahead of schedule. Long has Occidental been a major presence in the Permian Basin, going back to 2000 when it acquired then Texas’ largest oil and gas producer, Altura Energy. Today, with about 2.5 million net acres in the prolific shale play, Occidental is built upon a Permian-based foundation. Just last year, Oxy paid $600 million to acquire more wells from Hess Corp. in the Permian, and recently offered to pass the torch of knowledge to new partners, small cap Permex Petroleum who are close neighbors in the region.

Permex Petroleum Corporation (CSE: OIL)

Permex made a successful contrarian wager during the most recent cool period in oil prices, when management along with their teams of region-versed attorneys, and land agents to stealthily accumulate a very respectable Permian land base for pennies on the dollar. The team targeted newly divested assets coming from companies that were deep in debt or close to going bust, which resulted in what is now a portfolio of 6,500 acres of Permian acreage. Strategically, Permex also targeted assets equipped already with several wells primed for re-entry, stimulation, and other forms of enhanced oil recovery. The string of acquisition successes led the junior producer to sign a WI partnership deal with Occidental. Now the company is set on steadily increasing production, and through a two-phase strategy.

STEADY PERMIAN GROWTH OPPORTUNITY

The story of junior producer Permex Petroleum Corporation (CSE: OIL) is a story of timing. As the company acquired its Permian assets across the basin in west Texas and New Mexico, it did so almost too quietly—The market has yet to respond to their accumulated 9 million barrels in proven reserves which alone are worth approximately $150 million.

In a recent interview on the CSE’s official blog, Permex’s President and CEO Mehran Ehsan attributed his company’s unique value proposition to three main factors: Timing, geography and geology, and structure—But it all began with the timing.

“[Our] company began acquiring assets in one of the worst cycles in history,” said Ehsan. “During the downturn of the past three years Permex picked up a hawkish position by targeting companies with quite a bit of leverage. Typically, we were purchasing assets at 10 cents to 20 cents on the dollar.”

Ehsan illustrates his company’s advantage by highlighting the per-flowing-barrel value of their assets—essentially the number yielded by dividing the price paid for the total field by the amount of production you get.

“We ended up paying $11,000 to $15,000 per flowing barrel,” said Ehsan. “To put that in context, the market right now is around $45,000.”

And Permex’s deal-finding savvy doesn’t stop there. On a per-acre basis, the company managed to stay near the bottom of the price spectrum, all while acquiring properties that neighbor many of the biggest names in the region.

“Currently in our area, you see acreage going anywhere from $500 to as high as $10,000 per acre, yet we paid $500 to $700 per acre,” said Ehsan. “That is another testament to us entering the market during a downcycle and buying it at a discount.”

This same strategy was previously successfully accomplished by Ring Energy (NYSE: REI), which has grown since 2002 to a market cap of more than $700 million today. For Ring, many positive milestones were hit along the way, so now Ehsan and Permex are working in their own way to duplicate a form of Ring’s trajectory.

By betting during oil’s downturn, Permex is already benefitting through its Permian presence. They’ve since secured a WI partnership with petroleum giants, Occidental Petroleum Corporation (NYSE: OXY), through which they’ll have access to some of the best minds in the Permian, and be shepherded up into higher tiers.

Now that the billionaires like Druckenmiller and Soros have made their statement, it appears that Permex did right by getting ahead of the curve.

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Source: Livemoney (August 17, 2018 - 9:04 AM EDT)

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