Permian Springs To Life With $50 Oil

[FBaggins]

Last week saw the first significant increase in the number of active drilling rigs in the U.S. since the start of this year, suggesting that optimism is returning, albeit cautiously, to the shale plays, and nowhere did things look better than Texas’ prolific Permian Basin—long regarded as America’s ‘sleeping giant’.

Operators in the Permian added five rigs to their active count during the week, in the latest demonstration that the basin is perhaps the most viable across the shale patch, with its low production costs and abundant reserves. The Permian is enjoying a lot of attention from the energy industry and from private equity alike. Those with a presence in the basin are upbeat about the future, and those without are trying to step into it in order to share in the riches.

One of the biggest operators in the Permian, Pioneer Natural Resources, just recently indicated its optimism for the short term. Speaking at an industry conference, Pioneer’s executive VP Joey Hall said the company is planning to allocate $1.8 billion—about 90 percent of its total budget—to operations in the Permian. What’s more, the company is ready to ramp up its rig count in its two Permian fields – Spraberry and Wolfcamp – and has revised up its overall production growth projections to 12 percent. A bold move in a still oversaturated oil market that has just seen the re-entry of Iran.

Another of the majors, Occidental Petroleum, is also planning a production increase in the Permian, of 4-6 percent, to be fuelled by capex of some $3 billion. The company is consistently working on lowering its production costs, which last year averaged around $40 a barrel, to ensure its profitability even if prices start sliding again.

http://finance.yahoo.com/news/permian-springs-life-50-oil-211200031.html

If capital is jumping back into these plays with just $50 oil... then OPEC's power as a cartel is truly coming to an end for the foreseeable future.

The final nail in the coffin of the "peak oil was in 2005" crowd was some time back of course... but someone keeps buying pallets of nails.

[tonyt53]

1. They need the cash flow to stay in business. Only way to keep a line of credit open is payments

[FBaggins]

2. Sorry. That doesn't make sense

This is a story about billions of dollars in capital being invested in future new production that won't come online for some time. If the companies involved were desperately in need of cash for payments, they wouldn't be taking that cash and spending it.

[pscot]

3. it may not work that way now days

with fracking it's more of a quick hit. I think they drill, frack, pump and go to the bank all in one smooth motion.

[FBaggins]

4. Again... sorry. That isn't true either

If that were true then exploration companies wouldn't have any problems. They wouldn't have long term debt to service.

Also - they never would have cut back on drilling as they clearly did.

Besides... the argument would still break down. They can't be desperate for cash to make monthly payments if they can spend billions of dollars and turn it into even more cash in a "quick hit".

The reality is pretty simple: At current market levels, they expect new exploration in that play to be profitable enough over multiple years to return the 10+% that investors expect... and thus they can raise new capital for the venture. The companies mentioned weren't hit as hard because their cost of production was already lower than many of the others.

[NickB79]

5. The name is ironic, to say the least

The first thing I thought when I read your title was the Permian Mass Extinction 240 million years ago (the Great Dying), when 90% of all life on this planet was exterminated by carbon emissions.

[FBaggins]

6. There isn't any consensus that the P-Tr Extinction was caused by carbon emissions

There are several competing theories.