From Argus Media — Private companies in the Permian basin are taking a larger role in driving output growth in the region as publicly-traded producers bow to investor pressure to curtail spending and cut drilling.
Investors poured billions of dollars into acquiring acreage in the Permian basin in 2016-17 by backing both public and private companies or by setting up their own teams to run and operate assets. Investors were attracted by the basin’s low costs and technological improvements.
But as oil prices began to rise, public company shareholders became impatient with the lackluster share price performance, pressuring firms to lower costs and improve returns. Energy stock prices increased by only 1.1pc between January and mid-June this year according to Federal Reserve Bank of Dallas data, while the price of oil and the S&P 500 gained by 35.8pc and 24.2pc, respectively, Dallas Fed president Robert Kaplan says. Private companies have not been under the same pressure.
“Most of the rig count increases in the Permian are not coming from the bigger players,” Anadarko chief executive Al Walker says. “It is coming from the smaller, private companies or smaller private equity-backed companies.”
Since early 2016 through May of this year, the number of Permian drilling permit applications has grown from less than 800 to nearly 2,000.
Private operators share of the total number of drilling permit applications as also grown over that time, from less than 20pc of the total to more than 30pc as of May, according to consultancy Rystad Energy.
“It is the only company group on a growth trend during the last four quarters,” Rystad says.
Applications from the top 10 publicly traded listed operators have declined from more than half of the total to just about 30pc over the same period.
But pipeline constraints are likely to curtail production growth in the Permian for private and public producers alike. Bellwether Permian producer Pioneer Natural Resources expects output growth to stall for 12 months starting around September.
But the presence of smaller private operators in the Permian offers an opportunity for future consolidation and a market rebalancing, Pioneer’s chief executive Tim Dove says. Of the current total horizontal rigs of about 430, about half are operated by the top 16 producers. The remainder are operated by over 100 firms, many of them with just one rig, he says.
