The Permian Basin in West Texas is one of the most prominent sources of unconventional oil. If the Permian were a standalone country, it would be one of the largest oil producers in the world, with production exceeding the entirety of Canada.

The Permian Basin, about 250 miles wide and 300 miles long, covers a portion of western Texas and southeast New Mexico and includes sub-basins like the Northwest Shelf, Delaware Basin, and the Midland Basin. It has been long regarded as one of the most prolific oil and gas plays within the United States. During World War II, the Permian was responsible for producing 25% of the world’s oil and was one of America’s greatest assets. The Permian holds largest crude oil fields in the United States, and at the peak of the Permian’s production, it was producing about 2 million barrels a day. Some reasons revolving around its popularity and profitability stem from two main reasons:

Infrastructure: As the Permian is also one of the oldest plays in the United States, many developments such as pipelines, drilling-rigs, pumps, and support businesses, have already been established. This allows for producers to access equipment and extract oil more efficiently and at a lower cost. It is also able to distribute its oil to trading hubs, allowing it to sell at global prices, which is not something available to every play.

Geographical features: The Permian is unique relative to other plays in that producers can access various layers of oil-bearing rocks from a single region. Ultimately, producers will only need to prepare one drilling site and can expect to extract large amounts of hydrocarbons from various levels of drilling. This greatly enhances the producer’s output and efficiency, while simultaneously reducing risk and resource usage.

Today, horizontal activity has been dominating the Permian and has greatly enhanced the oil output.

Plays within the Permian include the Wolfcamp and Spraberry.

The Permian is usually segregated into two major operating areas, the Delaware and the Midland. The Delaware is west of the Midland and is:

• Deeper (more expensive to drill longer wells)
• Lighter (more condensate and lighter versus oil in the Midland)
• Lower oil cut/higher water cut
• Higher gas oil ratio (GOR) – this is less economic because oil is more lucrative than gas

Companies that Operate in Permian Midland

• Pioneer Natural Resources
• Diamondback Energy
• ExxonMobil
• Ovintiv (previously Encana)
• Concho Resources
• Parsley Energy
• Endeavor
• Apache
• SM Energy

Select Permian Company Profiles

Cimarex (NYSE: XEC)

• Multi-basin producer with core positions in the Anadarko and Permian Delaware (259,000 net acres)
  • Primarily focused on Wolfcamp play in Permian (78%) but also drilling in Meramec (Mid-Continent/Anadarko), Woodford, Bone Spring, Avalon
  • Drilling primarily in Culberson, Reeves, Eddy and Lea counties
    • Cimarex spends more money drilling the Permian Delaware which has higher oil content and larger wells – the Anadarko has to compete for capital
• Currently funding through cash flow, oil guidance of 83-87kbbl/d for 4Q 2019 from 8 rigs and 2 completion crews in Permian
  • 2019 Oil production grew 23-29%
• 591 mmboe proved reserves with PDP 85% of total
• Dividend payer
• Low leverage below 1.5x
• 2019 exploration and drilling capital of $1.4 billion and drilling & completions capital of $1.1 to 1.2 billion

WPX Energy (NYSE: WPX)

• Undergoing share repurchase program
• Growing dividend
• FCF yield target of 7-10%
• Want leverage of 1x
• Double digit ROCE
• Williston (Bakken and Three Forks) and Delaware

Matador Resources (NYSE: MTDR)

• Q3 2019 production of 39.8kbbl/d oil and 179.2mmcf/d gas
• 6 rigs running in Delaware in 4Q 2019
• Plans to complete 177 gross (75.9 net) operated wells in 2019
• Current market overhang due to fears of Democratic Party favorite Elizabeth Warren promise to stop fracking on federal lands (MTDR has production on federal lands)
• Has a midstream joint venture, San Mateo Midstream (51% owned with 49% owned by Five Point Capital) that provides natural gas gathering & processing, saltwater gathering and disposal and crude gathering in Eddy County, New Mexico and Loving County, Texas
  • Processing of 60mmcf/d and 200mmcf/d plant for 260 total.