It appears that the oil and gas industry is making a resurgence after several years in the doldrums, especially in Texas’s oil-rich Permian Basin. Oil prices have rebounded above $50 per barrel in early 2017, from a low of $26 in 2016. Remains of a struggling oil market still exists, but hope is brewing as exploration and drilling investments are surging. This is good new for the oilfield service industry, in particular those companies that serve the large oil and gas producers.
Heading into 2017, we’re seeing a dramatic uptick in oil and gas factoring activity in Texas’ Permian Basin. Recent deals include ExxonMobil acquiring 275,000 acres in New Mexico from the Bass family of Fort Worth for up to $6.6 billion. The deal came one day after another oil producer, Noble Energy, agreed to pay $2.7 billion to buy Clayton Williams Energy, giving it 120,000 oil-rich acres nearby in West Texas.
Why the “Permania”?
According to Barclays analysts, West Texas’s Permian Basin will be the only U.S. oil-producing area to see an increase in production this year. The number of wells in the Permian Basin is rising by more than 30% and outpacing other major basins in North Dakota and South Texas. The vast oil-rich shale formations of the Permian, along with an existing abundance of pipelines, have made the basin the cheapest to develop of any shale oil field in the country. The break-even price for the best acreage in the basin is as low as $40 a barrel. Most other shale fields have a break-even price of $10 to $20 higher.
“The Permian Basin has now become the crown jewel of the world’s oil and gas industry,” said Scott Sheffield, the executive chairman of Pioneer Natural Resources, a large producer in the area.
While there are hundreds of energy companies operating in the Permian Basin, less than 10 producers account for 50% of the basin’s output and just five large players control the bulk of the acreage.
Top Permian Basin Oil and Gas Companies
- Anadarko Petroleum
- Clayton Williams Energy Inc. (announced to be purchased by Noble Energy in January 2017)
- Concho Resources
- Devon Energy
- Diamondback Energy
- EOG Resources
- Occidental Petroleum
- Pioneer Natural Resources
These companies are just scratching the surface. The Permian oil basin’s best days could very well be ahead.
Fracking Oilfield Service Companies
Conventional hydrocarbon wells are drilled using rigs that are directed vertically. Unconventional hydrocarbons reside in shale formations and require a more complicated and expensive technique of horizontal drilling. Unconventional wells also differ from traditional wells in terms of production. Hydrocarbons in conventional wells naturally move to the well head or use pumps. Unconventional production is more complex since the oil and gas is typically trapped inside rock. The oil and gas must be stimulated using hydraulic fracturing (fracking), a process where millions of gallons of water, sand and chemicals are pumped underground to break apart the rock and release the oil and gas.
These new fracking operations make it more expensive for companies to produce oil and gas. For instance, conventional oil wells sometimes cost as little as $1 million to drill and complete. The average shale well in the Permian is estimated to cost over $5 million to drill and complete. An increasing shift to unconventionals and horizontal drilling creates much higher demand for oilfield services in the Permian. This is a welcome delight for oilfield service companies.
Oil and Gas Factoring
As new and small oilfield service companies begin to service the Permian’s increased oil and gas activity, the need for unconventional financing increases. Banks are typically confined to lending to more established companies with years of profitability and strong financials. Small and growing businesses will find they need the services of a good oil and gas factoring company. Invoice factoring (also referred to as accounts receivable financing) is ideal for growing businesses that need improved cash flow. Oil and gas factoring allows a company to avoid long delays in collecting accounts receivable from their customers. The upsides are improved cash flow, little or no debt, and sustained growth.
About the Author: Rick Hultz is the owner of FactoringClub.com, a nationwide directory of the best invoice factoring companies in North America. Rick is an industry broker and consultant for invoice factoring, accounts receivable financing and purchase order financing.