GUEST POST WRITTEN BY : James L. Rice III and Katy Lukaszewski
The authors are attorneys at Sidley Austin LLP
Oil production is surging in the Permian basin of west Texas and southeastern New Mexico. Output has doubled in the past five years to 2.4 million barrels per day, a quarter of U.S. supply. Drillers are piling it. Over the past year the M&A deals have been coming so fast in the Permian basin of Texas that if you blink you’ll miss one.
Company after company has piled in, paying more than $20,000 an acre for drilling rights. And that’s just the ante. As oil companies delineate more and layers of oil-soaked rock beneath the Permian, their inventory of drilling locations has exploded. In time, each square mile out there could see 30 wells drilled into it, at a cost of hundreds of millions of dollars.
Operators say big parts of the Permian are economic to drill even at $40 a barrel. Which is why we’re seeing more and more companies shedding producing assets in other geographic areas via wholesale basin exits to generate proceeds that they are plowing into largely undeveloped Permian positions. Read more…