$110 million sale of Permian Basin assets continues oil and gas growth in New Mexico, Texas

A Minnesota oil and gas company was the latest to spend millions of dollars in growing its presence in the Permian Basin, as the fossil fuel market continued an upward trend in prices and operations targeting the region in southeast New Mexico and West Texas.

Northern Oil and Gas announced Aug. 17 it was spending $110 million to purchase assets on the eastern side of the Permian within the Midland sub-basin.

The assets were expected to produce about 1,800 barrels of oil per day in the next year from 1,600 acres in Howard County, Texas.

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The sale also included about six producing wells, and eight undeveloped locations, per the announcement.

It was expected to close in October.

Northern Oil and Gas (NOG) Chief Executive Officer Nick O’Grady said the acquisition was intended to drive up investor returns through production in the Permian – the U.S.’ most active oilfield – which he said was also the most lucrative for operators.

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“We continue to focus on a balanced approach to growing our enterprise, with a focus on quality and low-breakeven economics,” he said. “NOG continues to build a stronger, more diversified company built to drive higher shareholder returns for the long term.”

The sale followed the company’s $419 million purchase of other assets in the region from Veritas Energy, which closed in January, including 6,000 acres in the western Delaware sub-basin expected to produce about 11,500 barrels of oil equivalent per day.

Northern Oil and Gas President Adam Dirlan said the latest transaction was meant to augment the Veritas sale, leveraging Northern’s existing assets to drive up growth during the market’s recovery.

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“In our second meaningful bolt-on acquisition of 2022, we have found a high-quality prospect that continues to grow our Midland Basin position,” he said. “Anchored by highly economic inventory, high oil cuts, and a strong operator, this transaction helps continue to build out the Permian Basin as an area of growth for NOG.”

But as interest in the lands and operations of the Permian Basin, so did demand for increasingly environmentally friendly operations.

That’s why ProPetro Holding Corporation announced it completed a lease agreement for two fleets electric hydraulic fracturing equipment to go into service in 2023.

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CEO Sam Sledge said the move was part of the company’s efforts to reduce greenhouse gas emissions in response to investor demands as fossil fuel production grows in the U.S.

“These new electric fleets utilize conventional pumping equipment and proven technologies that are well-known across our industry,” he said. “As demand for electric solutions continues to gain momentum, ProPetro is playing a significant role in bringing new technologies and more efficient, environmentally responsible solutions to the Permian Basin.”

He said multiple oil and producers were planning to use the technology, replacing gas-powered extraction equipment, for “multi-year” projects both for efficiency and to cut back on pollution.

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“With these more efficient fleets, we will help advance our customers’ efforts to reduce costs and greenhouse gas emissions, while enhancing our company’s competitiveness and free cash flow profile,” Sledge said.

Drilling and exploration infrastructure in the Permian continued a high level of activity as fuel demand stayed strong amid the U.S. and world’s recovery from COVID-19.

The pandemic led to plummet in oil prices, leading operators to reduce drilling rigs in all major fossil fuel regions including the Permian and New Mexico and Texas which share the shale deposit.

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Basin-wide, the Permian had 345 rigs as of Friday, per the latest report from Baker Hughes, down one rig in the last week, but up 98 rigs in the last year.

New Mexico added two rigs in the last week for a total of 106, records show, up 26 from last year.

And while Texas dropped three rigs last week, per the report, it was up 138 from last year for a total of 369.

But some oil and gas companies could struggle to capitalize on the market’s resurgence this year, read  a report from industry analytics firm Rystad Energy which showed oil producers could see more than $10 billion in losses tied to them hedging assets at a lower price point last year.

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Hedging is when companies buy assets and contracts at a fixed price to minimize future risks.

On Monday, domestic crude oil was trading at about $90 a barrel, per data from the Chicago Mercentile Exchange (CME).

That marked a gradual upswing since about $87 a barrel was report Aug. 16, per Nasdaq, after a summer of gradual downward fluctuations from a peak of $122 on June 8, but up about $14 a barrel since the year started at $76 per barrel, records show.

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CME predicted oil prices would steadily decline in the next year to about $88 at the start of next year.

As oil prices climbed this year, Rystad predicted many companies would be unable to use these hedged contracts to profit from the upswing.

For next year, the report said companies could negotiate high ceilings for their contracts, reducing losses to $3 billion in 2023 at $100 a barrel, $1.5 billion at $85 a barrel.

Hedging would become profitable, per the report, if oil prices dropped to $65 a barrel.

“With huge losses on the table, operators have been frantically adapting their hedging strategies to minimize losses this year and next,” Rystad Vice President Alisa Lush.

“As a result, we may not have seen peak cash flow in the industry yet, which is hard to believe given the soaring financials reported in recent weeks.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.