With production in the Permian Basin halting and causing a backlog, other regions such as the Powder River Basin (PRB) have emerged as possible contending producers. In many recent earnings calls, particularly EOG’s, the PRB was particularly notable and is generating a lot of buzz.
Indeed, this is a common occurance for basins at some point in their life cycle. The Eagle Ford, Bakken and others have all had their moment in the spotlight before resources and attention moved elsewhere. So perhaps there is reason to trust this buzz with a sense of caution. However, it is hard to dismiss companies of the calibre that Chesapeake, EOG and Anadarko are, with all having announced deals or big plans in the region. Since bottoming out in the summer of 2016, the amount of rigs operating in the PRB has increased fourfold.
What attracts these sorts of companies? A low profile. The PRB hosts very few big-name companies, with Anadarko, EOG, Chesapeake Devon and Anschutz Exploration holding the vast majority of the acreage in the PRB. The land is cheap too. An acre in the PRB can cost up to as little as $10,000, compared to $100,000 in the Permian.
Results in the PRB have also been initially good. A report from Robert Baird analysts stated that the average company in the PRB got 80% oil from its wells, about par compared to other oil basins. Revenue per lateral foot also has positive results, with an estimated $508 maximum revenue compared to $443 in the DJ Basin and $419 in the Midland.
These numbers are helped by much of the current development in the PRB being in shallower sandstone reserves, requiring less intense drilling and fracking compared to true shale formations. The PRB may not have the Permian’s allure of a layer cake of oil stacked upon each other but the basin is still stacked with a more complex set of chopped up reservoirs. This does mean however that more precise drilling and smarter fracking is required, meaning a more expensive well. Pad drilling, a concept of drilling multiple well in a single location, is established in the PRB but not to the degree as it is in other places. Thus, higher productivity is on the horizon for bigger operators with deep pockets. This would make the PRB a more more enticing prospect for big service companies that are pushing for more sophisticated drilling and completion techniques. Alongside Halliburton, drillers such as Helmerich & Payne, Schlumberger and Patterson-UTI Energy are all in a position to benefit hugely.
There is heavy potential in the PRB and it’s now down to the the likes of EOG, Chesapeake and Co to show that this potential can be realised and become a possible complementary region to the Permian.
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(Sourced from Liam Denning at Bloomberg.com)