Multi-million-dollar oil and gas deals in the Permian Basin mark recovery from COVID-19

Oil and gas’ interest in the Permian Basin of southeast New Mexico and West Texas continued to rise as multiple deal valued at more than $100 million were announced in recent weeks while production ramped up on the heels of COVID-19.

When the health crisis first hit the U.S. in March 2020, production slowed as travel and business restrictions stymied fuel demand. But as vaccines became available, restrictions were lifted, demand recovered, and production rebounded.

Minnesota-based Northern Oil and Gas announced it bought out Permian Basin assets owned by Veritas Energy for about $406 million, including assets in the western Delaware sub-basin and the eastern Midland Basin.

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The non-operated lands involved in the sale were in Lea and Eddy counties in southeast New Mexico, along with Loving, Reeves and Ward counties in Texas, and were expected to generate about 11,500 barrels of oil per day.

Northern Chief Executive Office Nick O’Grady said the purchase was meant to increase revenue and will drive fast investment returns for the company.

Chief Operating Officer Adam Dirlam said the company was in the process of growing its operations in the Permian Basin to take advantage of growing energy demands.

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“The Veritas transaction marks our fourth significant transaction in 2021 as we return focus to the Delaware basin, further scaling our business and building inventory with premier operators,” he said. “Northern continues to set the standard for non-operated energy management and will remain steadfast in our focus on consolidating high quality, low-breakeven assets.”

“It will drive immediate significant accretion across the board to our investors, increased cash returns, and importantly, creates a truly diversified business of scale, with substantial free cash flow that can self-fund future growth,” he said.  

Another recent deal saw Colgate Energy purchase 22,000 acres in Eddy and Lea counties for $190 million from a private seller.

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The deal was expected to close in early 2022, and was expected to add about 750 barrels of oil per day in production capacity, adding to the company’s 62,000 barrels of daily oil production on 108,000 total acres in Eddy County and in Reeves and Ward counties in Texas.

Colgate Chief Executive Officer James Walker said the deal would strengthen the company’s position in New Mexico, augmenting assets held across the state line in Texas which shares the greater Permian Basin region.

“Building on the transformative transactions completed earlier this year in Texas, this New Mexico acquisition adds to Colgate’s position as one of the premier private operators in the Permian Basin,” Walker said.

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Colgate had five rigs operating in the region at the time of the deal, and Co-CEO Will Hickey said the company planned to increase drilling activity using the acquired lands.

“The acquisition of this high-quality asset base adds to our existing inventory in the Northern Delaware Basin where we have recently drilled some of the best wells in the Company’s history,” Hickey said.

“Given the depth of our current inventory, we have a very high bar for acquisitions and this one was just too good to pass up. We are excited to allocate rig activity to these properties next year.”

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Markets recovering as demand grows, could be threatened by omicron

Basin-wide, rigs continued to increase in the last week as Baker Hughes reported as of Dec. 3, three rigs were added to the Permian in the last week for a total of 283, compared with 164 a year ago.

New Mexico added five rigs in the last week for a total of 88 compared with 59 last year, and Texas dropped two rigs for its latest total of 271 but up 122 from a total of 149 on the same date in 2020.

The growth in oil and gas rigs followed the recovery of oil prices to pre-pandemic levels after prices plummeted below $0 per barrel last year for the first time in history.

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The Chicago Mercantile Exchange reported Tuesday domestic oil was trading at about $72 per barrel, down from last month’s peak of about $84 per barrel as production of oil and gas grew to meet demand.

Spending on onshore shale development in the U.S. was expected to see continued growth next year to meet the higher demand, per a Dec. 1 report from international energy research firm Rystad Energy, which estimated investments could grow by 19.4 percent next year.

That meant an increase from about $69.8 billion this year to up to $83.4 billion in 2022, the report read.

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But that was still below Rystad’s pre-pandemic forecast for 2022 of $119 billion, read the report, and more volatility and investment hesitancy could be felt as reports mounted of the omicron variant of COVID-19.

“Oil and gas activity and upstream spending in U.S. Land has been exposed to significant volatility in the last two years,” said Artem Abramov. “Aggressive strategies from private operators in the U.S. shale patch have driven spending this year, but we anticipate significant growth in 2022 from public and private operators alike.”

Global oil demand could also see dip due to omicron, Rystad reported, cutting oil demand as much as 3 million barrels of oil per day (bpd) in 2022, dropping from 98.6 million bpd to 95.7 million bpd.

“The likelihood of increasing lockdowns in the coming months has risen dramatically due to the new omicron variant, and this will undoubtedly impact global oil demand,” said Claudio Galimberti, senior vice president of analysis at Rystad Energy.

“Given the early stage of the variant outbreak and the unknowns related to contagiousness and vaccine efficacy, we can only hope this scenario turns out to be a false alarm.”

Adrian Hedden can be reached at 575-618-7631, achedden@currentargus.com or @AdrianHedden on Twitter.