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TECHNICAL TOUR
Permian supply risk: consolida on creates new ac vity signals—condensed
By: Nathan Nemeth & Ryan Duman (Wood Mackenzie)
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Introduction
Permian portfolios are churning. As we move into H2 2023, the US$22 billion of Permian deal spend in H1 eclipsed last year’s entire figure. The majority of transaction value this year has been in the form of public E&Ps consolidating ten high-growth private companies.
But something stands out in this chapter of Wolfcamp A&D. Buyer plans to slow growth and cut rigs on their acquired assets have intensified. Where 2021 deals saw buyers cut one or two rigs, some deals this year involve all rigs on acquired assets being released.
In aggregate, at least 11 rigs will be available because of consolidation alone. This is atop the already established trend of Permian rig count sliding since late April. It’s a bold call, but consolidation is now the supply watchword, more than softening oil prices or well performance.
Scoopinguphigh-growthprivatecompanies
It’s been well documented that private operators have been responsible for the bulk of Permian production growth over the past few years. While some private operators like Mewbourne leaned into counter-cyclical OFS contracting and low costs, others like Tap Rock built production and cash flow to become more attractive acquisition targets.
Over the past two years, we’ve seen a flurry of deals that have featured an increasing number of public companies acquiring highgrowth private operators like Tap Rock and Hibernia. The ten private sellers in 2022 increased production by about 80,000 b/d or roughly 14% of all Permian growth. However, the six buyers (e.g.Vital, Callon, Matador, Ovintiv, etc.) only grew Permian oil production by just 50,000 b/d over that same period.
Permian private sellers oil production growth (gross operated volumes)
A 2023-I 221
Buyermindset
It’s often said that companies are bought for what they can be, not what they are. And that’s exactly the mentality of H1 buyers. However, the future is about drilling less, not more.
Thanks to generous deal transparency, buyer announcements have included rig plans for H2. Project areas included in the ten transactions above will see over 10 rigs retired by Q4 2023.
Ovintiv plans to drop five rigs. Civitas plans to cut three. And one rig will be dropped by Vital, Callon and Earthstone each. Matador plans to keep the one Advance rig active. Overall, the split is seven fewer rigs in the Midland Basin and four less in the Delaware Basin.
Permian 2023 rig count changes: acquisition and post-closing plans
Source: Wood Mackenzie
Nextyear’sgrowthfeelstheimpact
Planned rig drops will occur through Q3 and Q4 of 2023, meaning the bulk of the production impact from announced cuts will start to be realized in 2024. In a scenario where the idled Permian rigs don’t quickly return to work or move to other basins our models suggest 80,000 b/d less oil production in Q4 2024 than what would have likely been produced if the ten Privates had maintained their activity and growth trend.
Our oil price forecast calls for slightly higher prices later this year and the allure of drilling into a stronger NYMEX strip while there’s newfound rig capacity will no doubt incentivize some. But pinpointing who exactly might re-contract the rigs in the Permian is tricky.
Operatoraction
Most public E&Ps have messaged ‘stability’ in their planning, so it’s not a given independents will immediately jump at the opportunity to pick up additional rigs. That said, this could be a test for their resolve. The additional high-spec rig capacity could put moderate
Technical Tour / YP
downward pressure on day rates, making picking up a rig more attractive than last year. Remember, following some cost savings, SM Energy announced it will add a rig in Q4 2023.
Beyond the large independents, Majors could be interested in adding rigs to meet their outlined production targets. It would be opportunistic and driven by margins. Chevron already outlined earlier this year that it’ll increase Permian activity in H2. Recall the Majors’ Permian targets are the longest dated in the basin.
And it could flip back to private E&Ps again too, albeit a different grouping. Endeavor is flush with cash and there remains a group of 10,000 b/d to 30,000 b/d privates in the wings. If those management teams like the outcome of H1 consolidation for their competitors, they might also scale up production to meet materiality thresholds as well.
For more information or questions, please contact Nathan Nemeth (Nathan.nemeth@woodmac.com) and Ryan Duman (ryan.duman@woodmac.com)
SPE Awards
Recipient
Mr. Wesley Ingram
Mr. Danny Lewis
Name of Recipient Award Company
Paul Brown Regional Service Award
John Foster
Mohamed Mehana
Data Science and Engineering Analy cs Award
Reservoir Descrip on and Dynamics Award
Young Professional Member
Taylor Montoya
Arvind Ravikumar
Shivani Vyas
Outstanding Service Award
Chevron
Assistant Professor Aus n TX
Los Alamos Na onal Laboratory Research Scien st Albuquerque
ConocoPhillips
Sustainability and Stewardship in the Oil and Gas Industry Co-Director of the Energy Emissions Lab at UT Aus n
Young Professional Member
Outstanding Service Award
Mark Watson Comple ons Op miza on and Technology Award
Odessa Separator Inc
ConocoPhillips
Midland College PPDC
PPDC Courses
Midland College PPDC
221 N. Main Street Midland, TX 79701 (432) 683-2832 h ps://mcce.midland.edu > Oil & Gas Training
Petroleum Land Basics: Becoming LandWise
Instructor: Ralph Lea
August 1-3, 2023, 8:00 a.m. to 5:00 p.m.
Cost: $895, Out of State: $920
SafeLand USA (Veriforce/PEC)
Instructor: R. Glen Gann
August 3, 2023, Thursday, 8:00 a.m. – 5:00 p.m.
Cost: $200; Out of State $225
Adult & Pediatric CPR, AED, and First Aid
Instructor: Glen Gann
August 7, Monday
8:00 a.m. - 12:00 p.m.
Cost: $50, Out of State $75
Permian Basin STEPS Mee ng (Safety) – Open to the public
Sponsored by Precision NDT, LLC and Founda on Energy Services.
August 8, 2023, Tuesday, 8:30 a.m. to 11:30 a.m.
Midland College, 3600 N Garfield St, Midland, TX 79705
Scharbauer Student Center – Carrasco Room
2nd Annual - Monahans Excava on Safety Day – Free Admission
Damage Preven on Council of Texas
August 10, 2023, Thursday, 7:30 a.m. – 2:30 p.m.
Ward County Event Center
1525 E Monahans Pkwy, Monahans, TX 79756
OSHA 30-Hour General Industry Training
Instructor: R. Glen Gann
August 14-17, 2023 Monday -Thursday, 8:00 a.m. – 5:00 p.m.
Cost: $200; Out of State $225
Introduc on to SQL
Instructor: Mark Edgar
August 21, 2023 Monday, 8:00 a.m. – 5:00 p.m.
Cost: $475; Out of State $500
Remedia on and Restora on of Hydrocarbon and Brine Contaminated Soils - Self-paced and Online
Instructor: Dr. Kerry Suble e
August 21 – September 29, 2023
Cost: $750, Out of State: $775
Introduc on to Oilfield Opera ons
Instructor: Albert S. Garza
August 22-23, 2023, Tuesday – Wednesday, 8:00 a.m. to 5:00 p.m.
Cost: $625, Out of State: $650
A 2023-I 221
IADC Basin United Building the Basin: Fundamentals
Instructor: Glen Gann
August 23, 2023, Wednesday
8:00 a.m. - 5:00 p.m.
Cost: $200, Out of State $225
Midland College PPDC
Show us verifica on of your company’s Texas Mutual Insurance to get a discount and pay only $50. For Basin United classes only
Basic Pipeline (Veriforce) – New class
Instructor: R. Glen Gann
August 30, 2023, Wednesday, 8:00 a.m. – 5:00 p.m.
Cost: $200; Out of State $225
Managing Sucker Rod Li Well Failures
Instructor: Albert Garza
August 24, 2023, Thursday, 8:30 a.m. – 4:30 p.m.
Cost: $475; Out of State $500
Introduc on to Geology for Non-Geologists
Instructor: Paul Pausé
September 13-14, 2023, 8:00 a.m. to 4:30 p.m.
Cost: $1,000, Out of State: $1,025
H₂S Clear Training
Instructor: R. Glen Gann
September 14, 2023, Thursday, 8:00 a.m. – 12:00 p.m.
Cost: $50; Out of State $75
Oilfield Terminology
Instructor: Jack T. (Tommy) Lent
September 25-26, 2023, 8:30 a.m. to 4:30 p.m.
Cost: $625, Out of State: $650
Basic Drilling for Non-Drilling Engineers
Instructor: Jack T. (Tommy) Lent
September 27-28, 2023, 8:30 a.m. to 4:30 p.m.
Cost: $625, Out of State: $650
Petroleum Geology for Non-Geologists
Instructor: Paul Pausé
October 9-12, 2023, 8:00 am to 4:30 pm
Cost: $1835, Out of State $1860
Incident/Accident Inves ga on
Instructor: R. Glen Gann
October 11, 2023, Wednesday, 8:00 a.m. – 5:00 p.m.
Cost: $200; Out of State $225
Economic Evalua on & Investment Decision Methods (2.5 or 3.5 days)
Instructor: John M. Stermole
Before-Tax (2.5 Days) October 16-18, 2023, Mon & Tues, 8:00 am to 5:00 pm, Wed 8:00 am – Noon
Cost: $2,250, Out of State $2,275
A er-Tax (3.5 Days, Builds on Before-Tax Program) October 16-19, 2023, Mon-Wed, 8:00 am to 5:00 pm, Thur 8:00 am – Noon
Cost: $3,100, Out of State $3,125
SPE PB Board
2023-2024 SPE Permian Basin Board Members
Posi on Board Member Name Employer Email - Primary
Chairman Taylor Montoya ConocoPhillips Taylor.Montoya@conocophillips.com
Vice-Chairman Tyler Yancey Chevron Yanceyty@chevron.com
Treasurer Paul Brown Chevron Paulbrown@chevron.com
Secretary Ma hew Farris Core Lab Ma hew.Farris@corelab.com
Past Chair Shivani Vyas Odessa Separator Inc Shivanivy928@gmail.com
Awards Banquet Chair Aylin Ordonez TenEx Technologies aordonez@tenextechnologies.com
Clay Shoot Chair Dalton Kille Extract Companies Dkille@extractproduc on.com
CO2 Conference Chair Pamela Boring Baker Hughes Pamela.Boring@bakerhughes.com
Community Rela ons
Chair Heidi Higginson Endeavor Energy Resources Heidih@eeronline.com
Golf Tournament Chair Jeane e Reyes Endeavor Energy Resources Jreyes@eeronline.com
Marke ng Chair Sara Booth SCI Sara.f.foster@gmail.com
Member at Large Libby Einhorn Angelo State Libbyeinhorn@aol.com
Newsle er Chair Ryan Smith Chevron Ryan.a.smith@chevron.com
Programs Chair Andrea Switzer Velocity Insight Andrea.e.switzer@gmail.com
Public Rela ons Chair Miles Landry Permian Resources Miles.Landry@permianres.com
Scholarship Chair Ma hew Watson ConocoPhillips Ma hew.a.watson@conocophillips.com
Student Chapter Chair (UTPB & TTU)
Victoria Kuzmich Community Na onal Bank Vkuzmich@cnbtx.com
Study Group Chair Gustavo Gonzalez Odessa Separator Inc Ggonzalez@odsep.com
Vice-Treasurer Raul Paz ConocoPhillips Raul.Paz@conocophillips.com
Young Professionals Chair
Andrew Carpenter Diamondback Energy ACarpenter@diamondbackenergy.com
Study Group Chairs Chair Person Name Employer Email Data Analy cs Study Group
Comple ons & Operaons Study Group
Comple ons & Operaons Study Group
Reservoir Study Group
Vincent Doczy vmdoczy@gmail.com
Erica Sledge Erica.sledge411@gmail.com
Jesse Street Universal Pressure Pumping Jesse.Street@patenergy.com
Open Posi on – contact spepb@outlook.com if interested
Produc on & Facili es Study Group Mar n Lozano Diamondback mlozano@diamondbackenergy.com
