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High Costs and Investor Pressure Slow Permian Basin Excitement

A study confirms that rising production costs as well as high prices for leases have led to a slowdown in the Permian Basin in Texas and New Mexico.

Writing this week, the Houston Chronicle found that while drillers spent $35 billion in West Texas over 9 months ending in the spring, the collective value of land deals of the last six months has been less than $5 billion. The paper cited energy research firm Wood Mackenzie.

One of the reasons was to be expected….skyrocketing prices of land. In some cases, it was more than $30,000 an acre. And as exploration companies sent more and more rigs and trucks and crews to the region, their costs naturally went up as well.

Add to the fact that with OPEC’s announcement of curbing global crude supplies, U.S. drillers rushed into the region.

Greig Aitken, head of upstream oil and gas mergers and acquisitions at Wood Mackenzie said they had to know it wouldn’t last.

“The market was throwing money at them to buy things.”

 

Then there is the pressure from investors who want companies to spend within their means and not rely on debt or outside capital. Just last week, Anadarko Petroleum moved to ease the pressure from investors by spending $2.5 billion to rebuy shares through the end of the year.