At least $247 billion of capital will be needed to develop the new Wolfcamp-shale play—and just on 320s and in just two of the four zones.
“Is it too late to enter the Permian. I’d say that’s crazy,” says Mike Wichterich, co-founder and president of Permian-focused Three Rivers Operating Co. II LLC. “There are 57 private-equity-backed companies in the Permian. There are 57 sellers that are already into it two or three years. In the next two to three years, every one of these guys will sell.”
Wichterich presented recently to members of ADAM-Houston, an organization of oil and gas mergers and acquisitions professionals.
“And there are 200-plus mom and pops in the basin who can’t afford $8.5-million wells, $7-million wells, $6-million wells. They can’t afford a $4-million well in the Permian.
“Then you have seven public companies that are small caps. They can’t last. There will be massive consolidation. There is going to be a ton of consolidation here in the next three to four months. I will make the prediction: In three to four months, you’re going to see some major players come back into the market.”
Wichterich and his partners previously co-founded Riverstone Holdings LLC-backed, Permian-focused Three Rivers I, which was sold in 2012 for $1 billion to Concho Resources Inc. The divestment was within two years of Three Rivers’ first Permian acquisition, which was from Chesapeake Energy Corp. That and a second acquisition—from Samson Resources Co.—gave it 700 operated and 800 nonoperated Permian wells. With a new round of Riverstone backing, Three Rivers has amassed another Permian portfolio.
Further driving the consolidation will be that at least $247 billion of capital will be needed to develop the new Wolfcamp-shale play, he says.
“Let’s say you have two (Wolfcamp) zones that work on 320-acre spacing. That turns into $247 billion of development cost. All of the Permian companies combined don’t have that kind of money—in cash. They cannot afford it. And that’s for just two zones. We’re talking about three zones and four zones (of potential Wolfcamp pay).”
Basin acreage-holders may, rather than just selling, opt to do joint ventures or take nonoperated positions, he adds. “This basin is a capital machine and it looks like it’s going to be this way for a while.”
–Nissa Darbonne, Author, The American Shales; Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.
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