$1B oil and gas deal coming in Permian Basin despite slight dip in forecast oil production - Carlsbad Current Argus

$1B oil and gas deal coming in Permian Basin amid dip in production

$1B oil and gas deal coming in Permian Basin despite slight dip in forecast oil production
Adrian Hedden

An oil and gas operator based in Midland, Texas said it was expanding its presence in the Permian Basin in both the western Delaware and eastern Midland sub-basins in an about $1 billion deal.

Viper Energy, a subsidiary of Diamondback Energy, announced the deal Tuesday that will see it acquire acreage and other assets from Warwick Capital Partners and GRP Energy.

For the assets, Viper agreed to pay $750 million along with 9.02 million in common stock units, totaling more than $1 billion in cash and stock, according to the company’s latest financial report.

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Viper will acquire 4,600 total royalty acres in the Permian, read a company announcement, and another 2,700 acres in other U.S. oil and gas regions.

Of that, 2,800 acres were in the Midland Basin and 1,800 acres were in the Delaware Basin, with 21 operational drilling rigs.

In the Delaware Basin, along the Texas-New Mexico state line, about two thirds of the acreage was in Reeves and Loving counties in Texas.

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About 60 percent of the Midland Basin acreage was in Martin and Midland counties.

Production of the assets was estimated at about 7,000 barrels of oil equivalent per day (boe/d), about 4,000 barrels of oil per day bo/d, and was expected to grow to 8,500 boe/d and 4.

The Permian Basin assets accounted for 90 percent of the current production value in the deal, read the announcement.

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Th deal would increase Viper’s position in the Permian Basin to 32,000 acres, and up to 48,000 boe/d of production, with 60 active rigs in the area, the announcement read.

“This acquisition of high-quality mineral and royalty assets is a truly differentiated opportunity that represents a significant value proposition for Viper and its unitholders,” said Travis Stice, chief executive officer of Viper’s general partner.

He said the deal would help consolidate the oil and gas market, driving higher returns to stockholders of energy companies and stabilizing revenue.

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“As we look ahead, the mineral market remains highly fragmented and Viper plans to play a meaningful role in consolidating this market as high value proposition opportunities present themselves,” Stice said.

Warwick Managing Partners Alfredo Mattera said the deal was beneficial to all parties involved.

“The high-quality portfolio GRP has built means that the transaction has not only provided a positive outcome for our investors, but a fantastic asset for Viper to take on into the years to come,” he said.

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And as major oil and gas operators continued to buy up land and assets in the region, so too did smaller operators looking to gain a foothold in U.S.’ most active shale region.

Wedgemount Resources announced Aug. 23 it planned to acquire 1,200 acres on nine oil and gas leases, including eight producing and one injector well and generating about 27 barrels of oil per day.

That deal was valued at about $650,000, and was intended by the company to add to its existing operations, marking its third adjacent acquisition in the area.

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"We believe the new assets offer the same low-cost production upside exhibited by our existing assets,” said Wedgemount CEO Mark Vanry. “Further, the deal demonstrates the Company's ability to source and execute on low-cost conventional oil acquisitions in central Texas.”

These deals came as the Permian Basin was expected to grow in the future, despite a slight dip in forecast oil production this month, as production meets demand.

Oil was expected to drop by 13,000 barrels per day (bpd) in September to a total of about 5.79 million bpd in the Permian, according to the Energy Information Administration (EIA), from August’s total of about 5.81 million bpd – the most of any other shale region in the U.S.

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Natural gas production was expected to grow in the Permian, the EIA reported, by about 35 million cubic feet per day (cf/d) in September for a total of about 23.7 billion cf/d.

That’s the second-highest production and the most growth in natural gas among shale region the EIA reported on.

A report from international energy analytics firm Enverus said as proven oil and gas inventory is used up in the Permian, operators may begin looking for new, unproven portions of the basin to extract fossil fuels.

This could add up to 2.7 billion cf/d in gas production by the end of 2030, read the report, with locations breaking even at a lower oil price, potentially less than $50 a barrel, compared with $50 to $70 from the about 80,000 known geologically viable locations.

That’s based on West Texas Intermediate (WTI), a domestic oil pricing benchmark that was trading at about $87.6 a barrel Tuesday morning, according to the Chicago Mercantile Exchange.

The unproven resources could also push the lifetime of available inventory from 17 to 32 years, the report read.

“Geologically viable but relatively unproven inventory across the Permian Basin will be at the forefront as high-quality drilling locations breaking even below $50 WTI become scarce over the next decade for many operators,” said Enverus analysist Stephen Pratt.

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.