Few Bargains Left In Permian Basin

A few months ago, a small Fort Worth driller sold off tens of thousands of acres it had cobbled together in West Texas, earning a $2.8 billion fortune for drilling prolific wells during the worst oil bust in a generation.

Armed with a $400 million private equity investment, Double Eagle Energy Permian wants to build another foothold in the world's hottest oil field, aiming to drill its first wells on new property early next year. But this time, buying and flipping gushing oil land in the Permian Basin is going to be much more difficult and expensive.

"The availability of land is diminishing every day," said Garrett Martin, Double Eagle's senior vice president of engineering in Fort Worth. "Everyone wants to be there. Nothing out there is cheap anymore."

Over the past few months, the pace of transactions in the Permian Basin has slowed dramatically amid a combination of turbulent oil prices and the oil industry's buying spree in West Texas earlier this year, which consolidated large swaths of land and left behind a much smaller amount of contiguous acreage suitable for drilling sideways for thousands of feet underground, a technique used to plumb once-inaccessible rock formations.

The rush of geologists and drilling rigs into the world's hottest oil play will make it far more difficult and costly to invest in gushing oil fields in West Texas, a region investors and executives still believe could provide huge returns to wildcatters, oil industry professionals including Martin said at this summer's NAPE, a semi-annual gathering of energy deal makers at the George R. Brown Convention Center in downtown Houston.

More than 2,800 people walked the convention halls during the two-day event this week, networking and seeking lucrative land against the backdrop of colorful displays and maps of oil fields in West Texas, Oklahoma, North Dakota and Pennsylvania. Attendance increased slightly compared with last year's expo.

In the second quarter, the number of land deals in West Texas fell by a third to 30, and the combined value of those Permian Basin acquisitions sank 85 percent to $2.8 billion after a flurry of giant multi-billion-dollar transactions in the first three months of the year. Yet for some recent acquisitions, Permian Basin land prices still topped $30,000 an acre and $50,000 an acre, according to the Houston consultancy Petroleum Listing Service.

"It's going to be piecemeal; it's going to be harder to make the bigger deals." said Allen Gilmer, executive chairman of the consultancy Drillinginfo in Austin. "The ones who are going to make it are the ones who are drilling to develop. They're not just drilling to hold the acreage. They're going to recoup that acreage value back a lot faster."

Source: Houston Chronicle