With its low break-even costs and reliable regulatory framework, the Permian Basin presents an appealing opportunity for oil and gas investors seeking sustained growth and profitability over the long haul. The current favorable oil pricing environment further enhances the business outlook in the United States’ most prolific basin.
Rising Oil Prices
West Texas Intermediate (“WTI”) crude is nearing $80 per barrel, fostering an excellent climate for exploration and production. The U.S. Energy Information Administration predicts that the average spot price of WTI crude will rise to $83.05 per barrel this year, which is highly beneficial for upstream operations. This attractive pricing scenario is largely due to voluntary production cuts by the OPEC+ group and persistent geopolitical tensions.
Low Break-Even Cost in Permian: A Game-Changer
Covering an expanse of about 250 miles in width and 300 miles in length, the Permian Basin extends over regions of both West Texas and southeastern New Mexico, housing the immensely productive Delaware and Midland sub-basins within its bounds. Notably, the Permian Basin boasts some of the lowest break-even prices in the United States, typically below $50 per barrel for existing wells, per media reports.
According to Statista, a German online platform renowned for its data collection and visualization, the break-even WTI oil prices for operating existing wells in the Delaware and Midland sub-basins are $31 per barrel and $38 per barrel, respectively. Statista also provides data indicating that the break-even prices for operating new wells in the Delaware and Midland sub-basins are $64 per barrel and $62 per barrel, respectively. This cost efficiency is largely attributable to advancements in drilling technology and the benefits of economies of scale in the region.
3 Energy Players to Keep an Eye On
Given the current context where the break-even oil prices for both existing and new wells in the Permian Basin are notably lower than the current trading price of WTI crude, oil and gas companies with a significant presence in this prolific basin stand to be highly profitable.
Furthermore, the stable regulatory environments in Texas and New Mexico, where the Permian Basin is located, contribute to fostering investor confidence in the region’s long-term potential.
Therefore, it would be wise for investors to monitor three prominent energy companies operating in the Permian: Exxon Mobil Corporation XOM, Chevron Corporation (CVX) and Diamondback Energy, Inc. FANG. All three stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ExxonMobil possesses a robust portfolio of profitable projects in the Permian. Recently, the prominent integrated energy company finalized the acquisition of Pioneer Natural Resources, a leading oil producer in the prolific basin. This acquisition has significantly expanded the combined company’s presence in the Delaware and Midland sub-basins, totaling more than 1.4 million net acres. ExxonMobil has estimated the resource potential at 16 billion barrels of oil equivalent.
Chevron is one of the foremost oil and gas producers in the Permian Basin. In the most prolific basin in the United States, the leading integrated energy major’s footprint is spread across 2.2 million net acres. A significant portion of the company’s Permian operations yields minimal to no royalty payments, ensuring consistent cash flows. Consequently, analysts anticipate substantial production growth from this prolific basin for the prominent integrated energy player.
Diamondback Energy, a leading pure-play Permian operator, has reported ongoing enhancements in the average productivity per well in the Midland Basin. Thus, the exploration and production company is likely to continue witnessing increased production volumes.
The pending Endeavor merger, expected to close in the fourth quarter of this year, will significantly increase its Permian footprint, which the company cited at a combined pro forma scale of approximately 831,000 net acres. With the combination, FANG will have more inventory of core drilling locations with a break-even oil price of less than $40 per barrel.
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