American Oil and Gas Reporter - February 2016 - 81

ConventionSection: Texas Independent Producers & Royalty Owners

ative source on the rollercoaster of today's
politics," Welder suggests.
Other presenters on the morning agenda
include Peter Hennings with the University
of Texas' Bureau of Economic Geology,
Longanecker says, followed by the keynote
luncheon.
The afternoon sessions get under way
at 2 p.m., when William Stacey Locke,
CEO at Pioneer Energy Services Corp.,
will provide a service company perspective
about navigating through current industry
conditions, Longanecker says. Welder
observes that Locke, a San Antonio native,
has weathered numerous downturns. "He

is perfectly suited to speak to the TIPRO
membership on how he sees this current
downturn, which always sows the seeds
for the inevitable upturn," he says.
According to Longanecker, the afternoon's speakers also will include remarks
by Texas Comptroller Glenn Hegar, who
will provide an economic update. The
president's reception is scheduled for
5:30 p.m., followed by the chairman's
dinner, which will include the 2016 Hat's
Off Award presentation to Representative
Drew Darby, R-San Angelo, for his work
during the 84th Texas Legislature, says
Longanecker.

The convention's final day, Feb. 24,
begins when TIPRO's Audit Committee
meets at 8 a.m., followed by a 10 a.m.
board meeting that will conclude the conference.
"This is our 70th anniversary," Longanecker reports. "It is an important milestone for our organization and for the industry. The agenda for our 70th annual
meeting reflects the growth and change
that TIPRO and the industry have undergone. We are going to spend a lot of time
looking at the challenges and opportunities
facing the industry from an economic,
regulatory and legislative standpoint." ❒

Permian Basin Remains A Hot Market
HOUSTON-In an energy market struggling from oil price declines and anemic
financial returns, the Permian Basin is
the only U.S. unconventional liquids resource seeing significant year-over-year,
per-well productivity gains, an analysis
from IHS says. The report praises the
Permian Basin for single-handedly helping
to sustain oil field activity and making
the region a hotbed of consolidation.
According to the IHS Energy North
America Supply Analytics report, The
Permian Basin-Need for Improved Economics and Opportunities Drive Consolidation, peak productivity in the Permian
Basin has improved by more than 40
percent since the third quarter of 2014,
led primarily by the Bone Spring play.
This performance has not gone unnoticed
by either operators or the markets, IHS
notes, with the markets showing a preference for Permian deals.
"More than 1,000 operators have generated new volumes from the Permian
since January 2014, but just 10 operators
are responsible for more than 50 percent
of the combined liquids production in
the play," says Reed Olmstead, senior
manager-North America supply analytics
service at IHS Energy. "At the other end
of the spectrum, more than 650 operators
are generating less than 3,000 barrels a
day in the play."
Because of the play's performance,
and the interest and activity it generates,
IHS says it expects consolidation will
increase in the Permian Basin before the
second half of 2016, and that consolidation
will occur at a greater rate than in other
domestic plays.
"Operators are looking to focus their

money on areas that can generate economic
returns at depressed oil prices, and the
Permian keeps rising to the top when
you look at cost and performance," Olmstead says. "Permian prices skyrocketed
in 2015, passing all other plays."
Considering all Permian deals, the report says the Permian's Midland Basin
has seen slightly higher 1P (proven)
reserve valuations, bringing the play average from $13 per proven barrel of oil
equivalent of reserves to nearly $18. By
contrast, IHS says, Eagle Ford 1P reserves
have seen valuations closer to $15/boe.
The report says the "Permian premium"
indicates the upside expected from the
play as productivity continues to increase.
"Premiums do not appear to have
topped out, meaning companies looking
to do business in the basin may pay even
higher prices in the future," Olmstead
predicts.
Greater Efficiencies
The result of increasing consolidation
in the Permian play will be a net reduction
in capital spent, but higher productivity
levels as remaining operators will be able
to achieve greater capital efficiencies,
Olmstead says. Additionally, individual
operators will have more acreage for
high-grading opportunities and will employ
cost efficiencies across a greater inventory
of new wells, generating improved returns,
he continues.
Adds Jerry Eumont, managing director,
North American supply analytics service
at IHS Energy and co-author of the Permian Basin consolidation analysis, "Generally speaking, smaller operators have
more challenged economics than larger

operators, largely because of the ability
of larger operators to leverage operational
and cost efficiencies across a greater
acreage and production base. We anticipate
that much of the activity in the coming
months will be driven by operators of all
sizes, who already are operating in the
basin, but focused on leveraging acquisition attempts for a variety of strategic
purposes."
The IHS report points out that Apache
Corp. continues its transition to focusing
more on Permian unconventional wells,
while Pioneer Natural Resources Co.
splits its focus on its Permian and Eagle
Ford assets. Devon Energy Corp., despite
its position in the Barnett and Eagle Ford,
promotes activity in the Permian Basin,
although with below-average productivity,
the report says.
With the sustained drop in oil prices,
IHS says operators with a greater presence
in the basin appear poised to acquire
smaller, pure-play operators, but the report
also expects new entrants to be active.
More than 185,000 wells produce in
the Permian Basin, the IHS report notes,
with nearly 18,000 horizontal wells.
"The Permian Basin covers a vast geographic footprint. However, the large
number of wellbores leads to few, if any,
truly new production bases," Eumont
says. "With so little acreage not held by
production, any operator looking to enter
the basin will have but one method to execute that strategy: acquisition."
❒

Coming In March
Special Report: Market Analysis
FEBRUARY 2016 81

American Oil and Gas Reporter - February 2016

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