By: Adrian Hedden – Carlsbad Current-Argus – Oil companies continued to spend hundreds of millions of dollars to purchase land on New Mexico’s side of the Permian Basin in the southeast corner of the state, as demand for fossil fuel production in the region continues to grow amid the world’s recovery from COVID-19 and international market tensions.
Earthstone Energy, based in The Woodlands, Texas, announced on June 28 that it bought all of the oil and gas assets in the western Delaware sub-basin of the Permian owned by Titus Oil and Gas Production for about $627 million.
That included a production capacity of about 31,800 barrels of oil equivalent per day and 44 well sites and 7,900 acres in Eddy and Lea counties.
Ahead of the sale, Titus ran three rigs drilling six wells in Lea County, with completions expected in late 2022, per the announcement.
Earthstone said it plans to maintain two rigs in the Delaware and was considering a third along with two in the eastern Midland sub-basin.
Following the sale, Earthstone’s Delaware Basin presence grew to 44,000 acres – about 256,000 acres basin-wide.
Chief Executive Officer Robert Anderson said the sale was intended to build Earthstone’s portfolio in the Permian Basin – the U.S.’ busiest oilfield – and followed other acquisitions in the region announced earlier this year.
“We had a goal of adding to our recently established Northern Delaware Basin position and are excited about this transaction and the drilling inventory we are acquiring as it is among the highest economic locations in the Permian Basin,” Anderson said.
“We continue to pursue synergies from the two acquisitions completed since the beginning of 2022.”
Earthstone’s latest transaction followed the June 27 announcement that Sitio Royalties spent about $550 million on two acquisitions in the region as it also attempted to grow its footprint in the Permian.
For about $323 million, Sitio bought about 19,700 acres in the Permian from Midland, Texas-based Quantum Energy Partners, along with 12,200 acres for $224 million from Houston-based Momentum Minerals.
This increased the company’s Delaware Basin acreage to 24,500 acres and its Midland Basin land to 7,400 acres – amounting to a 30 percent increase in Sitio’s Permian Basin-wide position.
The acres were in Eddy and Lea counties, along with Loving County, Texas in the Delaware Basin, and Martin and Midland counties in the Midland Basin.
Sitio CEO Chris Conoscenti said the acquisitions were intended to drive up returns for the company’s investors, as part of a market-wide trend toward asset consolidation and improving profit margins following the market’s historic downturn as the COVID-19 pandemic took hold in early 2020.
“We are excited to announce these highly accretive acquisitions in the Permian Basin and continued execution of our returns-focused, large-scale mineral and royalty consolidation strategy,” Conoscenti said.
“We expect our shareholders to significantly benefit from efficiencies due to the increased scale of the Company and a substantial increase to our dividend.”
Noam Lockshin, chairman of Sitio’s Board of Directors said the Permian Basin would prove valuable to the company in increasing production in the coming years.
“The acquired assets are in highly valued areas of the Permian Basin, meaningfully increasing our line of sight to strong production growth in the near-term and providing substantial remaining inventory,” he said.
As operators are poised to increase their fossil fuel output in the Permian Basin, so too was the region’s capacity to ship oil and gas out of the region and to export and refinery markets on the Gulf Coast of eastern Texas.
Kinder Morgan announced on June 29 a planned expansion of its Permian Highway Pipeline capacity to about 550 million cubic feet per day of gas by November 2023, targeting increased capacity at the Waha Hub where oil and gas from throughout the region in New Mexico and Texas is gathered before being transported to market.
Kinder Morgan Natural Gas Midstream President Sital Moody said the project would alleviate takeaway limitations in the region as capacity grows instep with fuel demand.
“The project will alleviate transportation constraints out of the Permian Basin so as to further support meeting our domestic and global energy needs,” Moody said.
Jamie Welch, CEO of Kinetik, which joint-owns the pipeline with Kinder Morgan, said the expansion would improve access among gas producers to processing facilities. “This expansion couldn’t come at a more critical time, as it will foster future natural gas production growth in West Texas and provide several liquefaction facilities along the Texas Gulf Coast with more affordable, reliable supply,” Welch said