Oily Permian Players Take a Dip Into Gas-Rich Plays

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A handful of Permian Basin producers known for their oil output are moving to test the Barnett Shale and other gassy zones on their acreage as stronger commodity prices support delineation.

Most recently, Pioneer Natural Resources CEO Scott Sheffield said last week the company would begin testing the Barnett and Woodford formations deep in its Midland subbasin acreage next year.

“It’s important to understand what we have, where natural gas prices may end up long term,” Sheffield said at the Barclays CEO Energy-Power Conference, noting that returns from the gassier formations may not be as good as those in the Spraberry-Wolfcamp oil plays. He also said that while the formations have been tested on the eastern and western edges of the Midland, they have yet to be delineated in the deeper parts of the subbasin.

Other oil-heavy operators, including Occidental Petroleum, Continental Resources, and Diamondback Energy have filed permits with Texas regulators this year to drill the Barnett. Occidental has also filed permits to drill the Devonian and Mississippian plays as well, regulatory data show.

But they are staying tight-lipped about the future of the assets. Oxy declined to comment, while Diamondback and Continental did not respond to requests for comment.

Enverus Vice President of Intelligence Stephen Sagriff told Energy Intelligence that there has been a marked increase in permit and rig activity in gassier regions across the Permian over the past six to nine months. That’s because the current commodity price environment, where natural gas is especially elevated compared to oil, encourages gas testing as the disparity in economics between the different zones or regions starts to diminish.

“Further, elevated commodity prices across the board is an environment that naturally drives delineation and testing — everything is on the table and operators want to take advantage of the current situation to understand their assets through and through,” Sagriff said via email.

Back to Alpine High

One operator that hasn’t kept mum on its plans to develop Permian gas is APA Corp. (formerly Apache), which moved a rig back to its gas-prone Alpine High play near the Delaware subbasin during the second quarter. It’s the first time the gas-prone field has been drilled since 2019.

The company took a massive write-down on the acreage in 2020 after posting disappointing well results, including those in the Woodford and Barnett.

But last month, an APA executive said the company would test a number of zones on its existing West Texas footprint as well as on recently acquired acreage in the Delaware.

Going into next year, it’s possible for APA to increase the amount it spends at Alpine High, Sagriff noted, and in general capital allocation could “very moderately” tilt toward some of the gassier zones if prices stay elevated. But activity targeting oily plays still dominates in the Permian, Sagriff added.

Still, oil-prone operators have a plethora of associated gas to deal with. That could be a problem for operators chasing gas, as takeaway capacity constraints are expected to come to the fore next year.

“The reason why only 11 out of the +93 increase in rig counts is in gas-targeted plays is because they are competing against associated gas from crude- or liquids-focused plays,” Rob Wilson, vice president of products at East Daley Analytics, told Energy Intelligence.

“High WTI crude prices spurring activity in the Permian, Eagle Ford, Williston and Anadarko is crowding out any chance gas-focused basins have of growing. Crude oil economics matter much more to Permian producers, I don’t see why they would be targeting gas plays with crude at $80+ per barrel.”

Elsewhere in Texas

Interest in natural gas has also ticked up in South Texas, home of the oily Eagle Ford Shale, where EOG has been developing its massive Dorado play. The company is already deploying capital to the play with plans to drill 30 wells this year, nearly triple what it drilled last year.

Earlier this week, Eagle Ford Shale producer SilverBow Resources unveiled a new position in the Dorado spanning 7,500 net acres and comprising 30 million cubic feet per day of production. The Webb County block holds net recoverable resource of approximately 650 billion cubic feet, according to SilverBow’s estimates.

SilverBow has already drilled two wells on its new acreage, with one targeting the Eagle Ford and the other chasing the Austin Chalk.

“Our current plan is to run a contiguous rig to develop the inventory as we ramp our gas production into a very favorable price environment,” CEO Sean Woolverton said.

Gas Prices, Exploration, Rig Count, Shale, Independent E&Ps, Corporate Strategy
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