There has been a 50-fold increase in the price for drilling rights over the past four years in the busiest oilfield in the US, the Permian Basin, according to Wood Mackenzie. That’s 10 times higher than costs in North Dakota’s Bakken formation, the nation’s second most prolific oilfield, according to a Bloomberg report citing WoodMac’s analysis. The soaring costs are prompting oil producers and private equity firms to look elsewhere for new finds, as companies are paying as much as $60,000 per Permian acre.
Gabriele Sorbara, with Williams Capital Group LP, told Bloomberg, “companies that don’t already have a foothold [in the Permian] are seeing valuations that are out of control. They can’t get involved.” The report noted that BP has recalibrated its shale E&P efforts to Argentina’s Vaca Muerta shale formation, while Newfield Exploration is zeroing in on northern Oklahoma’s STACK formation.
But for producers that already have a foothold in the region, the Permian is indeed the ‘gift that keeps giving.’ Permian wells are profitable even with oil prices less than $40/bbl due to more and thicker pay zones.
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