Hello everyone!
A lot of news to catch up on this week but first, I got a lot of great feedback from Eric Rice’s report on GOLD last week. Most of it was positive and follows Eric’s predictions regarding buying gold NOW and the weaker dollar but a few aren’t necessarily drinking out of his garden hose.
It was a great read, but of course, we can put the information out there and everyone has their own opinions. Thanks Eric, and all of you who provided feedback last week.
When discussing BLACK GOLD (or “earl” as Uncle Jimmy would call it), there are some blockbuster deals in the works.
Exxon is still looking at Pioneer Natural Resources. A big question is why the behemoth Exxon Corporation would want Pioneer? They are definitely the big boy in the room and a pure Permian producer with approximately 650,000 barrels of oil equivalent per day which equates to $24 billion in revenue and approximately $12 billion in EBITDA.
They also have a massive amount of drilling inventory in the Permian which makes the company very attractive. The talks this week discuss Exxon may have to pay $70 billion for a company with a market cap (this week) of $50 billion.
The Permian Basin is the place to be if you are an oil/gas producer. The Permian produces over 5.5 million barrels of oil per day and 20 billion cubic feet of gas. In contrast, the Bakken and Eagle Ford field produce a little over 1 million barrels a day, each.
This is significantly more oil production in West Texas, and it will continue. There are talks that production could be as high as 7 million barrels a day in the next couple of years.
Another huge deal in the making is Ovintiv Inc. (OVV:N). Ovintiv is the old Laredo Petroleum group and is looking to purchase 3 private equity backed platform companies with 65,000 acres from EnCap Investments for $4.3 billion in cash and stock.
This is a great buy for Ovintiv as they are paying 2.8 times EBITDA! They are also picking up over 1,000 locations to drill in the future (as we call them “sticks”. More on this later).
I remember going out to Coahoma (east of Midland along I-20), where my Great Grandfather drilled wells and worked as a production foreman for many wells on the oilfield on the south side of I-20.
The wells were not very expensive to drill and would produce 10-12 barrels a day after a couple of years and it was hard work. The weather in the summer is extremely hot and the days were very long. The work on drilling rigs and/or workover rigs bringing a well into production was extremely painful.
The Permian has “recreated itself” several times and especially with horizontal drilling and fracking. Wells come in at 1,000 barrels a day or more and costs over $10 million to drill/complete.
A proven approach, in today’s market, is companies are looking to pick up PDP (Proven Developed Producing) but most importantly, they need places to drill in the future PUDs (Proven Undeveloped locations).
The Permian has a finite number of locations to drill as location inventories are decreasing with over 200 rigs currently in use. In order for companies to grow, they will need acquisitions of either oil and gas companies or projects.
This is where King Operating comes in.
The Believers Project, part of the King KOPX Program 4, located in Borden County Texas is growing in location count and overall value. With 6 formations identified as possible “pay zones”, the total qualified drilling location count now exceeds 200.
And many of the locations stack. That’s good because it means the field can be developed more efficiently with fewer pads (a pad is a worksite where an oil well is created). Instead of drilling one well on one pad, an operator can use the same pad and drill multiple wells.
This allows us to not accumulate as much land as in the Eagle Ford. The economies of scale will be more valuable, thereby drawing more interest from public companies.
When they come in to scale the development, efficiencies are already achieved in the land. They can scale things like tank battery setup, pipeline connections, and reduce travel between sites for their people on the ground.
Public companies cannot do what King does in regards to finding an area and drilling initial wells with equity/debt to identify number of locations to produce oil/gas in the future.
A public company working in the Permian is built for scale, not creating it through proving up underdeveloped fields.
Back to the Believers Project… the third well is in development and a large acreage position has been amassed. The current drill plan puts the total well count in this project as high as 15.
We will test the market at the end of the year for divestiture. If the opportunity isn’t right, we will drill 20 wells next year and test the market again.
We are excited about the opportunity of drilling in the Permian in the Believer’s Project as we develop the asset. Stay tuned for more updates!!!
Here’s why oil prices could hit $100 a barrel this summer
FOX News Radio asked me to come on for an interview 🎙 with WWVA Wheeling, West Virginia.
Recommended Reads
What Does the Future Look Like for Oil & Gas
Current Rig Count in North America
Saudi-US Relations Sour Further on Huge OPEC+ Surprise Cut
There are some outstanding results coming in the current program… KOPX Program 4. If you are not in it, and you are accredited, it’s a good time to have a conversation! You can schedule a Zoom here.
