They call it “Permania”. The Permian Basin of western Texas and eastern New Mexico has become the hottest region in the US shale oil industry, for drilling, for production and for deal-making.
The region was already in high demand for acquisitions last year, and a couple of deals this week with a combined value of almost $10bn have confirmed that Permian assets are still the most sought-after for companies seeking to increase their US oil production.
In the long term, the future of the Permian looks bright. The region has many layers of oil-bearing shale, and companies are only just beginning to explore the potential of those multiple zones.
But if oil prices falter, companies that have been overambitious with their acquisitions will face difficulties.
A critical factor in sustaining the US shale industry through the oil price downturn has been the support of the capital markets, and particularly equity investors.
Investor appetite for US E & P company equities will probably be put to the test this year with several initial public offerings, according to Bill Nelson of Haynes and Boone, the law firm. They will follow Extraction Oil & Gas, which in October became the first US E & P company to float for more than two years.
Excerpted from the Financial Times. To read the full article, please click here (subscription required.)