Analysis says dominant players in Delaware Basin delivering remarkable profitability at current prices
HOUSTON – A handful of dominant oil and gas companies operating in established sub-plays in the Delaware Basin are delivering remarkable profitability at current prices thanks, in part, to their early entry and their extensive technical knowledge of the local geology, according to analysis from IHS Markit.
“We found that the Delaware Basin’s multiple company sub-plays are delivering impressive economics at a $50 per barrel reference, and we attribute that to two primary considerations—early entrance into the play and extensive geologic knowledge,” said Sven Del Pozzo, CFA, director of energy company and transaction research at IHS Markit and author of “IHS Herold Company Play Analysis: Delaware Basin: The Strong Get Smarter; Remarkable Profitability at Current Prices.”
The IHS Markit analysis looked mainly at the New Mexico Second Bone Spring Play, as well as the Texas Wolfcamp play, and to a lesser extent, the Third Bone Spring, which offered less attractive economics at current prices than the other sub-plays studied.
Key implications of the research piece ended up being prescient, including the analyst’s assertion that EOG needed more acreage in the play (which the company secured one month later with its acquisition of Yates Petroleum).
Additionally, IHS Markit identified Yates as being one of the few private entities that served as a possible acquisition target, with assets that sat in the core of the Basin’s Bone Spring play.
“Some companies are evolving completion techniques in the Delaware Basin’s technically challenging plays with very impressive results, while others require higher prices to match the returns of the play leaders,” said Del Pozzo.
EOG, a Delaware Basin old-timer, has “outstanding economics” in the play, which stands to become even more relevant now that EOG has announced its recent acquisition of Yates Petroleum, the analysis said.
EOG has tremendous acreage in the play, including large swaths of seemingly good acreage that were undrilled by Yates. This suggests value accretion is also a major driver of shareholder value, IHS Markit said.
Prior to the recent Yates transaction, Del Pozzo said that, “EOG needed to beef up its presence in the core of the Delaware Basin, where its acreage and activity seemed low relative to its company size.”
The research piece had also identified Yates as being one of the few private companies with core acreage.
In reference to the Yates deal, subsequent IHS Herold deal analysis stated: “Strategically, the assets are a beautiful fit for EOG, and based on our preliminary analysis, appear to have been acquired at a low price of nearly $2.5 billion, which might be considered a steal of a deal.”
Other players such as Noble Energy are showing promise in the basin’s sub-plays, but are yielding very few results, the report says. Noble Energy’s first long laterals on the Rosetta acreage were impressive based on productivity per foot, with more results expected soon.
WPX Energy’s wells exhibit sturdy economics, IHS Markit said, but to generate shareholder value, the company’s well performance will have to improve.
A later entrant to the Delaware Basin’s sub-plays, Occidental Petroleum is still on the steep part of its learning curve and must replicate its most recent results from extended laterals to generate shareholder value, IHS Markit said.
The company has recently reported encouraging New Mexico results in the Second Bone Spring.
“Overall, we are impressed with the sturdy economics of the Delaware Basin’s company sub-plays,” Del Pozzo said.