A headline in Tuesday’s online edition of The Houston Chronicle, “Drillers Choke Off Dollars To Permian Basin Operations,” may have unintentionally caused confusion regarding the current state of play in the country’s most active drilling and oil-producing basin.
The story to which this headline was attached references a report by the firm Wood MacKenzie that discusses how upstream merger-and-acquisition activity in the Permian has trailed off somewhat dramatically in recent months. This is entirely true. As The Chronicle points out, Wood MacKenzie’s data indicates: “Drillers spent $35 billion in West Texas over a nine-month period that ended in early spring. By comparison, the collective value of land deals of the last six months is less than $5 billion.”
Someone at The Chronicle apparently realized that the initial headline was somewhat confusing ― the Wood McKenzie report does not talk about any slowdown in drilling ― because the headline was later changed to read “Rising Costs, Land Prices Have ‘Taken The Edge Off’ Permian Basin.” It was inevitable that the upstream M&A fever that developed in the Permian last summer was bound to eventually slow down. As geographically huge as the Basin is, there is a limit to the amount of acreage within it that could rationally be evaluated to meet acquisition costs that in some deals exceeded $40,000 per acre. So it is not surprising at all that the pace of land and reserves transactions has slowed dramatically.