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The Permian Basin Reborn (XEC, CXO, EP)
The Permian Basin, which has been producing oil and gas, for nearly a century, is seeing a resurgence of activity as the exploration and production industry scours North America in its pursuit of oil and natural gas liquids. The basin sprawls across West Texas and Southeast New Mexico, and has dozens of formations that produce oil and gas in economic amounts.
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Growing Exploration
Cimarex Energy (NYSE:XEC) has 12 rigs working in the Permian Basin and worked mostly on the New Mexico side during the third quarter of 2010. The company has targeted the Bone Spring, Abo and Paddock formations. Wells that the company has recently reported in the Bone Spring formation produce oil in a range from 75% to 90% of total production.
Cimarex Energy has drilled and completed 61 gross wells in the Permian Basin through the first three quarters of 2010, with another 18 gross wells queued up to be completed. Cimarex Energy has used the Permian basin and other properties in its portfolio to increase its total percentage of oil and liquids to 35% in the first half of 2010, up from 28% in 2008.
High Returns
El Paso Corporation (NYSE:EP) just added approximately 123,000 acres to its holdings in the Permian Basin. The acreage is spread across four counties in Texas, and the company expects to develop the Wolfcamp play here. El Paso Corporation estimates that it has more than 600 drilling locations into this play on its acreage, and many other potential zones to explore for future development.
El Paso Corporation estimates that wells here will cost between $4 and $6 million, and have an internal rate of return as high as 30%, assuming $70 a barrel for oil.
The Largest Players
One of the largest players in the Permian Basin is Concho Resources (NYSE:CXO), which has acreage in both New Mexico and Texas. The Permian Basin accounts for 94% of the company's proved reserves and 86% of its production. The company has a huge development program going on here, and during the third quarter of 2010 drilled 154 wells.
Of course, no review of the Permian Basin is complete without discussing Occidental Petroleum (NYSE:OXY), which is the largest operator here with more than 2 million net acres, and 1.1 billion barrels of proved reserves. The Permian Basin accounts for 20% of the company's total production, or 180,000 BOE per day. Occidental Petroleum is ramping up development here in 2011, and will increase its rig count from the nine currently being operated to fifteen rigs in 2011.
Bottom Line
The Permian Basin, once written off by the industry as a mature producing area, is seeing new life as new technology is being applied to develop the oil and natural gas liquids of this basin. (To learn more, see our Oil & Gas Industry Primer.)
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IN PICTURES: 9 Simple Investing Ratios You Need To Know
Growing Exploration
Cimarex Energy (NYSE:XEC) has 12 rigs working in the Permian Basin and worked mostly on the New Mexico side during the third quarter of 2010. The company has targeted the Bone Spring, Abo and Paddock formations. Wells that the company has recently reported in the Bone Spring formation produce oil in a range from 75% to 90% of total production.
Cimarex Energy has drilled and completed 61 gross wells in the Permian Basin through the first three quarters of 2010, with another 18 gross wells queued up to be completed. Cimarex Energy has used the Permian basin and other properties in its portfolio to increase its total percentage of oil and liquids to 35% in the first half of 2010, up from 28% in 2008.
High Returns
El Paso Corporation (NYSE:EP) just added approximately 123,000 acres to its holdings in the Permian Basin. The acreage is spread across four counties in Texas, and the company expects to develop the Wolfcamp play here. El Paso Corporation estimates that it has more than 600 drilling locations into this play on its acreage, and many other potential zones to explore for future development.
The Largest Players
One of the largest players in the Permian Basin is Concho Resources (NYSE:CXO), which has acreage in both New Mexico and Texas. The Permian Basin accounts for 94% of the company's proved reserves and 86% of its production. The company has a huge development program going on here, and during the third quarter of 2010 drilled 154 wells.
Of course, no review of the Permian Basin is complete without discussing Occidental Petroleum (NYSE:OXY), which is the largest operator here with more than 2 million net acres, and 1.1 billion barrels of proved reserves. The Permian Basin accounts for 20% of the company's total production, or 180,000 BOE per day. Occidental Petroleum is ramping up development here in 2011, and will increase its rig count from the nine currently being operated to fifteen rigs in 2011.
Bottom Line
The Permian Basin, once written off by the industry as a mature producing area, is seeing new life as new technology is being applied to develop the oil and natural gas liquids of this basin. (To learn more, see our Oil & Gas Industry Primer.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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