Permian Privates Playbook

While public operators are on a growth diet, private operators are taking advantage of higher oil and gas prices—and nowhere more so than in the Permian Basin.

Henry Resources’ Gwendolyn lease is located about 1 mile south of the Midland airport in Midland County, Texas. (Source: Henry Resources)

[Editor's note: A version of this story appears in the November 2021 issue of Oil and Gas Investor magazine.]

The U.S. oil and gas industry is benefiting from higher oil and gas prices this year—a welcome development for producers following the pandemic-related downturn in 2020.

In the prolific Permian Basin, publicly listed operators remain under pressure to prioritize returns to shareholders and maintain discipline, but private companies do not necessarily have the same constraints.

In a recent report, Morningstar Equity Research noted that the U.S.’ privately operated rig count increased by 80% since the pandemic nadir, compared with only 50% for the publicly operated rig count. This is largely playing out in the Permian, which accounted for almost all U.S. shale production growth in the second quarter of 2021 and remains attractive to operators.

Morningstar estimates that the marginal U.S. shale well breaks even at a WTI price of about $55/bbl and that most are profitable at even lower prices.

“For the Permian, a single figure would be misleading as the distribution of well economics is complex and varies across county, target reservoirs and factors in numerous variables related to the completion design,” said David Meats, Morningstar’s director of equity research of energy and utilities. “Safe to say most Permian wells are economic at $55, and the majority are profitable at much lower prices than that ($30 to $40 would be typical, albeit with plenty of exceptions for the reasons described).”

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Anna Kachkova

Anna Kachkova is a freelance writer based in Edinburgh, Scotland.