The Permian Basin, with its low break-even costs and favorable regulatory framework, presents a lucrative opportunity for oil and gas investors amid rising WTI crude prices nearing $80 per barrel.
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Diamondback Wells Drilled Since 2023
Notable companies like ExxonMobil, Chevron, and Diamondback Energy are well-positioned to benefit from this environment due to their significant and efficient operations in the region. These companies’ strong presence in the Permian Basin ensures they can leverage the current favorable market conditions for sustained growth and profitability.
Rising Oil Prices
West Texas Intermediate (WTI) crude is approaching $80 per barrel, creating a favorable environment for exploration and production. According to the U.S. Energy Information Administration (EIA), the average spot price of WTI crude is projected to rise to $83.05 per barrel this year. This optimistic pricing scenario is driven by voluntary production cuts from the OPEC+ group and ongoing geopolitical tensions.
Low Break-Even Cost in Permian: A Game-Changer
Spanning approximately 250 miles in width and 300 miles in length, the Permian Basin stretches over West Texas and southeastern New Mexico. It includes the highly productive Delaware and Midland sub-basins. The Permian Basin is notable for its low break-even prices, often below $50 per barrel for existing wells. According to Statista, the break-even WTI oil prices for existing wells in the Delaware and Midland sub-basins are $31 per barrel and $38 per barrel, respectively. For new wells, the break-even prices are $64 per barrel and $62 per barrel, respectively. These low costs are attributed to advancements in drilling technology and economies of scale.
3 Energy Players to Keep an Eye On
Given the current situation where break-even oil prices in the Permian Basin are significantly lower than the current WTI crude prices, companies with a substantial presence in this area are likely to be very profitable. The stable regulatory environments in Texas and New Mexico further enhance investor confidence in the region’s long-term potential. Notable energy companies to watch include:
1. ExxonMobil Corporation (XOM)
ExxonMobil has a robust portfolio of profitable projects in the Permian Basin. Recently, ExxonMobil acquired Pioneer Natural Resources, significantly expanding its presence in the Delaware and Midland sub-basins to over 1.4 million net acres. The resource potential is estimated at 16 billion barrels of oil equivalent.
2. Chevron Corporation (CVX)
Chevron is a leading oil and gas producer in the Permian Basin, with a substantial footprint across 2.2 million net acres. Many of Chevron’s Permian operations incur minimal to no royalty payments, ensuring consistent cash flows. Analysts expect substantial production growth from this region for Chevron.
3. Diamondback Energy, Inc. (FANG)
Diamondback Energy is a leading pure-play Permian operator, consistently improving average productivity per well in the Midland Basin. The pending Endeavor merger, expected to close in the fourth quarter of this year, will expand Diamondback’s Permian footprint to approximately 831,000 net acres. This merger will provide Diamondback with more inventory of core drilling locations with a break-even oil price of less than $40 per barrel.
In conclusion, the Permian Basin’s low break-even costs and supportive regulatory environment make it an attractive investment opportunity, especially with WTI crude prices on the rise. Key players such as ExxonMobil, Chevron, and Diamondback Energy are poised for significant growth and profitability due to their extensive and efficient operations in this prolific region. Investors should consider monitoring these companies as they capitalize on the favorable market conditions and their strategic advantages in the Permian Basin.
