The oil price crash walloped large independent oil companies during the past year, which on average lost a third of their value, according to RBC Richardson Barr, a Houston-based energy advisory firm.
But some companies buck that trend and they share a common trait — they focus on the Permian Basin, where they lay claim to prized sweet spots, and all issued equity this year.
“None of them are laying off,” said Steve Pruett, CEO of Elevation Resources in Midland, who pointed to four companies in particular. “They are still acquiring people. They are still doing deals and acquiring leasehold … They are the haves and the rest of us are the have-nots.”
Issuing equity can help companies pay off debt, improve their balance sheets and provide cash for future drilling and acquisitions, Pruett said.
Here is a quick rundown of the “haves” he was referring to:
— Midland-based Concho Resources, with a Friday market capitalization of $13.5 billion that was down less than 9 percent from where it was at the same time last year.
— Diamondback Energy, also based in Midland, has a market capitalization that is actually greater than a year ago by some 19 percent, about $5.2 billion.
— Parley Energy, which grew more than 3 percent to more than $2.8 billion
— And RSP Permian, which grew in value by a similar margin, also to about $2.8 billion.
That does not mean relief for the thousands of oilfield workers who lost jobs, or an imminent return to activity of recent years, but it does illustrate the promise of a region that oil companies covet.
In a brief Thursday interview, Concho Resources CEO Tim Leach spoke confidently about the company’s position during the downturn.
“We’ve slowed down, but we’re all Permian and we’ve got a great set of assets,” Leach said Thursday. “We’ve been here before. We live for times like these.”
A day later, Bloomberg News broke a story that Concho Resources is seeking to buy Clayton Williams Energy, a smaller company also based in Midland. Representatives of Concho and Clayton Williams did not comment on the Bloomberg report.
A Concho spokesman did not respond to a request for comment.
But Pruett, a former Concho employee, said the report does not suggest that Concho is actually going to buy the company just because executives considered it.
“It’s one of many and it’s a far, far cry from a deal,” said Pruett, adding that he considers opportunities for merger and acquisition activity “overvalued” at this point in the downturn.
But the news nonetheless represented the second report about consideration of a merger between companies focused on the Permian Basin in a week’s time.
Earlier in the week, Anadarko representatives confirmed a separate Bloomberg report that the company approached Apache Corporation — among the top leaseholders in the Permian Basin — about buying Apache, which rejected the offer.
The Permian Basin is the only shale oil producing region in the country expected to keep growing production, according to the Energy Information Administration, which predicted the region will pump more than two million barrels a day this month for and then keep producing more next through the end of the year, as overall production from shale in the United States starts to drop.
Other observers such as the Houston-based analytics firm Wood Mackenzie showed the Permian Basin as reaching 2.04 million barrels a day in August.
The analytics firm IHS recently released a detailed report about a Permian Basin sub-play closest to Odessa: The Northern Midland Basin. In Midland County and the border region with Ector County, RSP Permian, Diamondback Energy and Pioneer Natural Resources have the most acreage “where well performance is typically impressive in stacked pay zones.”
Pruett said he would also consider Pioneer Natural Resources “a have” but for different reasons, mainly the company’s bread-and-butter assets in the Spraberry Trend, the massive oilfield in the Odessa and Midland area that runs some 2,500 miles. But the company also has assets outside of the Permian, making it unlike the other four. And according to filings with the Securities and Exchange Commission, Pioneer shut down a Colorado office and laid off employees.
The IHS report’s author, Sven Del Pozzo, found “outstanding potential” for the area but that “few of the basin’s corporate sub-plays are currently economically viable even at current costs.”
Because of steep decline rates, “only a handful of areas can recover half of a completed well cost in six months or less under a $50 price,” wrote Del Pozzo, a research director at the firm. At $65, most areas still take at least that long to recover half of a well cost.
That means investment decisions depend more on what oil prices are up to a year from now than on the peak-production periods oil company executives often emphasize. In the case of the four “haves” though, Pruett said the reason for their success is simple: “Good zip code. Good execution.”
This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.