5 Permian Basin Oil Producers With The Lowest Break-Even Price.
Updated: Aug 20, 2018
The Permian Basin, which covers 75,000 square miles over West Texas and southeast New Mexico, is the most prolific oil producing basin in the country – so much so that it’s become difficult to find ways to get the product to market.
Wells Fargo recently projected that oil pipeline constraints may last until 2020, versus its previous prediction of the third quarter of next year. That means more transport by rail or by truck, which is much more expensive.
So given that fact, along with pricing differentials widening for oil coming out of the Permian, getting that oil out of the ground cheaply has become more important than ever.
GlobalData Energy came out with an interesting report last month that analyzed recent wells drilled by 26 operators in the area. It found that the break-even oil prices for wells with lateral lengths of 4,500 to 10,500 feet ranged from $21 to $48 per barrel.
Of all the companies it studied, it found that EOG Resources, Exxon Mobil unit XTO Energy, Pioneer Natural Resources, Concho Resources and Chevron had the lowest oil break-even price – less than $26 per barrel at lateral lengths between 7,560 and 10,500 feet.
The firm pointed out that oil and gas companies operating in the Permian Basin over the last three years have drilled longer lateral wells and used more complex completion designs to boost initial production rates.
However, GlobalData upstream analyst Svetlana Doh – who previously worked as an engineer at Schlumberger – said in the report that longer laterals don’t necessarily translate into high productivity, with EOG and QEP Resources having similar lateral lengths but EOG having twice the initial yields.
“The reason for such a difference is generally related to a completion design incorporating more fracturing stages and the amount of proppant injected,” she said, proppant being the solid material used to prop open a well fracture. She notes that EOG’s recent wells have 2,400 pounds of proppant that are injected per lateral foot while QEP’s wells only have 1,300 pounds.
EOG is a favorite of analysts at Tudor, Pickering, Holt going into second-quarter earnings season, with the company expected to announce its results Aug. 2.
After ExxonMobil reported a hefty second-quarter earnings miss on Friday, Raymond James analyst Pavel Molchanov maintained his market perform rating on the oil and gas giant. He said the stock was one of the “least appealing” ways to play what he predicts will be rising oil prices over the next six to 12 months given its “subpar” production trend (“and still no word on buyback,” he added).
Chevron also missed earnings expectations despite near-record production (up 52% in the Permian year-over-year), but announced it planned to resume its stock buyback program after a four-year break. Molchanov upgraded the stock to outperform last month with a $140 per share target, versus $125.94 on Friday. Source: Forbes.
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