Permian Basin 2017

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PERMIAN BASIN: OVERVIEW 4 | November 2017 | O ne of the most challenging picture puzzles ever devised was double sided with a red rose on a black background. The back side was ex- actly the same photo at a 90-degree angle from the front side. Finding contiguous acreage in the Perm- ian Basin can be just as challenging as that picture puzzle if not more so, and the Permian Basin is where the money and rigs are. The Permian Basin is estimated to produce about 2.9 MMbbl/d of crude oil by year-end 2018, about 515,000 bbl/d above the June 2017 estimate, according to the July "Short-term Energy Outlook" from the U.S. Energy Information Administration (EIA). That would represent almost 30% of total U.S. crude oil production in 2018. The EIA's "Drilling Productivity Report" for July 2017 noted that new-well oil production per rig in barrels per day decreased for the 10 th consecu- tive month in June, which indicates "operators are drilling more wells than they are completing. Lags in well completion may reflect implementation of strategies that drill more wells from a single pad with completion equipment not deployed until all wells are drilled." In the rig count for Sept. 2, 2016, the number of rigs working in the Permian Basin reached 202 units, topping 200 for the first time since the rig count bottomed at 134 units on April 29 and May 13, 2016. A year later on Sept. 1, the rig count was nearly double at 380 rigs, according to Baker Hughes, a GE company. Stiff competition for Permian acreage The cost of leases in the Midland and Dela- ware basins runs from $50,000 to $60,000 per acre. In the San Andres horizontal play in the Central Basin Platform (CBP) and Northwest Shelf, which is a conventional play, leases run $500 to $1,000 per acre. Many companies are selling assets in higher cost plays to invest in the Permian. In its second-quarter report on July 26, QEP Resources Inc. said its wholly owned subsidi- ary, QEP Energy Co., entered into a definitive agree- ment to acquire properties in the Permian Basin for an aggregate purchase price of $732 million. The acquisition was about 13,800 net acres with more than 730 potential drilling locations over four de-risked horizons in Martin County, Texas, near QEP's existing Midland Basin acreage. This figures to about $12,800 per net mineral acre per horizon ($51,200 per acre). Major companies are beginning to bow out of the Permian Basin while mid-majors and small companies continue investment binge. The winners face higher costs and stagnant oil prices on the way to the finish line. Finding the Right Mix of Technology, Leases and Investment By Scott Weeden Contributing Editor

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