Down to the wire in 2016, Permian Basin A&D continues to be epic—with many deals stretching well beyond $1 billion despite one of the more prolonged low-priced oil environments in recent memory.

What of 2017? The deal environment will change, likely with fewer and smaller transactions. Should oil prices hold above the $50 range other basins will begin to heat up and competition—thanks to availability of capital—could be fierce.

For most of the year, U.S. shale basins have endured a long season of A&D neglect as the Permian’s reputation for stellar economics have made deals palatable there and boosted the stock of companies connected to the basin.

Sam Burwell, an analyst at Canaccord Genuity who covers the Permian Basin, said many of the private-equity companies that have been targets for public companies have been snapped up. He’s not sure the Permian buying frenzy that’s run from summer through December can continue as it has.

“I think M&A kind of has to cool down at least in terms of the private equity backed companies getting acquired because we’re out of them,” Burwell told Hart Energy. “Unless companies get more interested in going farther west of the Delaware, the acquisitions we do see will get small, probably along the size of Callon acquiring Amerdev. That was $600 million.”

The gas-oil ratio tends to get gassier moving west and are potentially more challenging to drill, though the areas are still potentially dynamic.

Delaware acreage prices have increased more than 5x in the last six months, leading some “to question the sanity of more than $40,000 per acre valuations,” Burwell said.

“We believe these pricey acquisitions do make sense in a $45-$55 WTI range since it is accretive for acquirers to add rigs and quickly grow production on the new acreage,” Burwell said. “Rather than locations per section, typically cited as the reason for high acreage prices, we think near-term cash flow growth is the key factor as it most underpins accretion.”

However, if oil prices don’t cooperate “the accretion story falls apart rather quickly,” he said.

George N. Koutsonicolis, a managing director with SOLIC Capital Advisors LLC, said that the price per acre has simultaneously increased as demand for acreage has grown.

However, “I think that most of the transactions you’ve seen in that space have been more reserves, not actual producing wells,” he said.

As far as what’s remaining to acquire, at the end of the day everything is for sale at the right price.

“If there’s continued demand in that basin, I think you’ll see more reserves than actual producing wells being sold,” he said. “Some of the small players may be looking to monetize and equitize their capital investment. So they’d be big sellers in that market.”

Koutsonicolis said that at least for the next six months the Permian will likely continue to dominate.

“Again the caveat is that oil holds above $50 a barrel. That will definitely drive the transaction activity in the Midland and Delaware basins,” he said. “Once that pool of assets has transacted you’re going to see activity spreading out to the other basin.”

Mike Bengtson, an attorney at Baker Botts who handles M&A and capital formation transactions, said he’s already starting to see movement in other basins, particularly the Eagle Ford.

Bengtson represents a private-equity backed client looking at multibillion dollar packages offered by a seller that wants to concentrate on the Permian and other areas.

“Some of the smaller players are going to buy off some of the bigger players in the Eagle Ford,” he said.

As for the Permian outlook, with regulatory, political and price tailwinds, the debt and equity markets are likely to be more open to E&Ps. With access to capital, that will mean more competition.

“From a macro environment, I think I see more buyers, less sellers going into 2017,” he said. “Companies that haven’t had the balance sheet to compete on transactions potentially can.”

Bengtson said deals are likely to get larger and more strategic.

The Permian A&D boom has been not just loud, but also sustained with less than 10 deals eclipsing the 10-figure mark since July for $17.7 billion in value.

Irene O. Haas, an analyst for Wunderlich Securities, said other plays will begin to get interesting if oil prices increase.

“It is truly mind-bending how many multimillion- and billion-dollar deals have been initiated and closed in the Permian region just in [the second half of 2016],” she said. “The Delaware Basin in particular has seen a number of new entrants such as Centennial Resources, PDCE, RSP Permian and Callon Petroleum.”

Haas expects more drilling and M&A catalysts from the Permian in 2017 before the basin runs out of leg room.

In the Midland Basin, most projects are entering development mode. After price escalation and limited tracts of up to 20,000 acres became harder to find, the Delaware became a favorite target of E&Ps.

“As crude prices improve and rig counts continue to increase, producers are expecting service cost escalation in 2017, ranging from 10% to 15% with pressure pumping being the first to see cost increase,” she said. “Casing prices are going up due to steel prices and high performance rigs could become harder to secure.”

Delaware producers are delineating new zones, optimizing completion designs, looking for efficiency gains, and running well-spacing pilots in anticipation of full development, Haas said.

“In addition to finding the right horizontal spacing, companies are trying to understand how to stack these wells vertically,” she said.

Producers are also planning out staffing levels and training for new oilfield service workers.

Darren Barbee can be reached at