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COVID-19 oil bust turns Texas land into bargain

Permian, Permian Data Cell Phone bandwidth, oil

By: Paul Takahashi – Houston Chronicle – Eric Huffman remembers a time not long ago when prospectors paid a hefty premium for land in the nation’s hottest oil fields.

But since the coronavirus pandemic deflated crude demand, the value of oil land in West Texas and around the country has plummeted. Huffman, a land broker and attorney at Houston-based Lone Star Production Co., said he’s seen land prices fall below $1,000 an acre for property that was once valued at more than $10,000 an acre.

“When (oil) prices are too low, no one is buying land,” Huffman said. “Everybody is risk-adverse at the moment.”

Even if drillers were bullish on the quick rebound of crude demand, investors and banks have little interest in financing efforts to buy properties and drill new projects after years of disappointing returns in the energy sector.

“People aren’t competing to acquire assets because there’s not the capital readily flowing into the space,” Huffman said. “The appetite is just not there.”

As a result, the average price of U.S. shale acreage has fallen by more than 70 percent in two years, to $5,000 per acre in 2020 from $17,000 per acre in 2018, according to Rystad, a Norwegian energy research firm.

Amid the wider decline, the value of some shale plays has held up. The Permian-Delaware basin is still valued at $30,000 per acre and the Midland basin is valued at $17,000 an acre, Rystad said. But prices for devalued oil and gas lands will be slow to recover as long as COVID-19 cases surge, and related lockdowns keep pressure on demand for petroleum.

We do not foresee demand for (oil) assets rising in the coming quarters,” Alisa Lukash, a senior analyst at Rystad, said in Thursday’s report.

The real estate downturn is squeezing oil and gas companies that are relying on asset sales to balance budgets and pay debt. Houston-based Occidental Petroleum, which is trying to sell billions of dollars of assets to erase debt incurred in its $38 billion acquisition of Anadarko Petroleum in 2019, said this week that it lost $700 million on asset sales in Colombia and Wyoming because of low crude prices.

Land brokers, called landmen in the oil and gas industry, also are feeling the squeeze, as work has dried up, said Huffman, a former president of the Houston Association of Professional Landmen, which has some 1,300 members. These brokers work with oil and gas producers to find and lease properties to drill. But with few companies drilling new wells, there aren’t many buyers seeking broker services.

“It’s been pretty tough for landmen,” Huffman said. “What was once a land rush is now being scrutinized by very sophisticated oil and gas people that are trying to find a couple of shiny diamonds in a pile of gravel.”

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