HOUSTON—Nine years into his job as chairman and CEO of Parsley Energy Inc. (NYSE: PE), Bryan Sheffield has become an old hand in the Midland Basin.
Parsley has withstood the two-year blast of A&D that swallowed up smaller, neighboring companies—and spent billions itself expanding its territory, most recently with a $2.8 billion February deal.
“It’s been a wild nine years, with a lot of good luck and good timing,” Sheffield said at the 2017 NAPE Summit business conference on Feb. 15. He sees the Permian Basin continuing to evolve from scattered legacy fields to an oil production standard-bearer.
With private-equity backed companies virtually out of stock, the next wave of A&D could come in the form of cascading mergers that reshuffle the logjam of E&Ps yet again, he said. But, regardless of what deals may come, Sheffield said the Permian is an opportunity for talented landmen.
Stitching together the mineral rights and working interests of the mature play will create more than one millionaire, he said.
Sheffield pointed to Parsley’s latest and largest acquisition—a $2.8 billion deal for 71,000 net acres from Double Eagle Energy Permian LLC announced Feb. 7.
The acreage is a “perfect example of putting the pieces together,” he said.
Two landmen, Double Eagle founders Cody Campbell and John Sellers, put together “that $2.8 billion position in two years. It’s truly remarkable,” Sheffield said.
“We feel this strengthens our position as a leading Permian operator and sets us apart from our peer companies on the basis of size and quality of our acreage position in what we think is the most desirable basin in the United States,” Sheffield said.
After initially turning away from the oil business, Sheffield took over operation of 100 Spraberry Trend in the Midland wells owned by his grandfather.
Nine years ago, Parsley’s competitors were family operators and a few private-equity backed teams.
“Just two years ago, there were four or five public pure plays competing with one another,” he said. “Now, that’s more than doubled to 10 to 12 competitors. Today we are often competing against private-equity backed management teams with lots and lots of capital. In fact, there’s so much capital, we’re seeing more management teams than ever who have cash and want to buy something.”
When Sheffield started Parsley in 2008, land cost the company $2,000 to $3,000 per acre. By the time of Parsley’s IPO in March 2014, acreage costs had risen to about $20,000.
“Now, even through a downturn the past few years, we’re seeing transactions between $40,000 and $50,000 an acre,” Sheffield said.
Sheffield’s original goal had been to build a company worth up to $20 million. By 2014, the company had done far better than that, he said. “We had worked hard and built a $400 million company.”
The play’s transformational moment began with EOG Resources Inc. (NYSE: EOG) and then his father’s company, Pioneer Natural Resources Co. (NYSE: PXD), drilling horizontal wells that unlocked vast oil potential.
“Horizontal drilling tripled or quadrupled Parsley’s value overnight,” Sheffield said. “Of course, horizontal drilling costs a lot more than vertical. My costs went from $2 million a well to $8 million.”
Sheffield initially needed skilled engineers and savvy landmen to drill vertical wells. Drilling horizontally requires geologists on the surface to examine samples and guide geosteering through zones.
The stacked-potential of the Permian has only intensified the need for landmen in the Midland, Sheffield said.
“We need to pool larger tracks together getting mineral owners and working interest workers to sign off along large horizontal plays,” he said.
Addressing the landmen in the crowd, Sheffield said there are millions of dollars to be made in the Permian.
Piecing together land in the Eagle Ford, Haynesville or Bakken benefit from being relatively new plays. The maturity of the Permian Basin makes it far more complex, he said.
“The Midland Basin might have 100,000 pieces,” he said. “That’s especially challenging in the Spraberry because the pieces of the puzzle have been cut up so much over the years.”
But as companies grow larger, it becomes more difficult to focus on small leases.
“Operators are always going to lose leases and plug wells,” he said. “There are lots of breadcrumbs scattered across the huge Midland and Delaware fields for those hungry enough to search for them.”
Sheffield sees A&D now shifting from public companies buying up private-equity backed E&Ps to, perhaps, mergers.
“No one is sure where all this activity and capital and competition are heading,” he said.
Sheffield expects to see some mergers—perhaps a few, perhaps a wave of them.
“The first merger could create a chain reaction, a frenzy of multiple mergers perhaps resulting in the creation of large-cap to compete with Exxon, Chevron, ConocoPhillips,” he said. “I think it’s likely it just takes one big move for the dominoes to begin falling.”
Darren Barbee can be reached at firstname.lastname@example.org.
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