Whatever Happened To The Southern Midland Basin?

Whatever Happened To The Southern Midland Basin? 960 640 C-Suite Network
A pumpjack sits on the outskirts of town in the Permian Basin oil field on January 21, 2016 in the oil town of Midland, Texas. (Photo by Spencer Platt/Getty Images)

Don’t look now, but the rig count in the once-forgotten southern Midland Basin is on the rise again. A combined 35 horizontal rigs are active in Upton, Reagan, Irion and Crockett counties – impressive considering there are 52 active rigs in the entire Williston Basin.

The conventional wisdom from 2014 was that the southern Midland was fringe, so what has changed to bring activity back?

Oil price is, of course, the simple answer. Wood Mackenzie estimated last year that the southern part of the basin needed $48/bbl to see material activity return. But there’s a lot more to it than just some price support. Forget what you thought you knew about the southern Midland – it’s a new play today.

Private equity is back on the scene

The line-up of operators in the southern Midland has quietly evolved over the past couple years into a fresh class with private equity capital committed to pushing development forward. Prior to the booms in the northern Midland and southern Delaware, there was also a major influx of private equity. EOG sold its Crockett County position to Amistad Energy (Kayne Anderson) and its Irion, Reagan and Schleicher County position to Sequitur (Acon Investments). EP Energy expanded its position when it bought BHP’s assets, and Apollo Global Management will help fund development of specific tranches of wells. ConocoPhillips’ position, acquired in the 2011 University Lands lease sale, is now owned by Henry Resources. Permian Resources (Energy and Minerals Group/First Reserve) is one of the most active operators in the area. Fleur de Lis acquired Devon’s Irion and Crockett County position last year. Other operators that will play a role are Foreland Operating (Vortus Investments), Hunt Oil (TSSP), PT Petroleum (Kayne Anderson) and Broad Oak II (EnCap). Our North America Well Analysis Tool (NAWAT) is a wonderful way to visualize and benchmark these operators’ positions.

Is $48/bbl still the magic number?

In a word, no – and for two major reasons. Firstly, the investment thesis of many private equity-backed companies is that bringing new technology back to rocks once deemed under-productive is a winning strategy – see…