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Oil & Gas Financial Journal: Midstream Assets in the Permian – Close Doesn’t Count

ogfjOIL AND GAS PRODUCERS have been scrambling to acquire drilling acreage in the Permian Basin in what is turning into one of the biggest land grabs since commodity prices tumbled in late 2014. Over the past few months, QEP Resources, PDC Energy, Concho Resources, SM Energy, and Parsley Energy have all announced deals to enter or expand into the basin. Billions of dollars are being spent with some deals inked at well over $30,000 an acre-valuations higher than when oil was priced over $100 a barrel. The recent buying spree is a welcome sight to the midstream sector that has been desperate to find a growing basin since drilling peaked in 2014. Oil is certainly the main focus for these producers, but the river of hydrocarbons flowing below West Texas is also rich with copious amounts of natural gas and other liquids that need to be gathered, processed, and transported. And while most of the major midstream players have at least some exposure to the Permian, a majority of the current business is dominated by just a handful of midstream companies.

From an asset-level perspective, the Permian can be broken down into 48 separate natural gas gathering and processing systems. Those 48 systems include more than 150 processing plants which are gathering supply from around 160,000 active wells based on drilling from hundreds of active rigs. Interestingly, of the 48 systems tracked, we estimate only 14 will have significant growth based on current Permian drilling expectations. These 14 systems are well positioned in core areas and over 70% of the rigs operating in the basin are currently drilling on their footprints. So while it is true that the Permian is a hot investment right now, this isn’t horseshoes or hand grenades. Close doesn’t count.

Read the full article written by East Daley Capital’s Director of Research, Matthew Lewis here.