Could Euro, Asian investors be eyeing the Permian?

By Staff | February 22, 2017

Mangesh Hirve is the Chief Operating Officer for a global oil and gas research firm called 1Derrick. We spoke with Hirve about a new storyline his team believes is about to hit the current shale industry: international investors from Europe or Asia investing again in U.S. onshore production. He offered a unique data set on the trend in European and Asian investment into U.S. onshore assets beginning in 2008. He also offered his sentiment on the international investor and what such an investor is looking for in an unconventional play opportunity.

As his data shows, deal making in the US unconventional industry started in 2006 and then began gaining international investors in 2008 and ’09. From 2013 to 2016, investment dried up, he said, as oil prices and returns were both decreasing. However, advances in field know-how, drilling speeds, completion designs and a better global supply/demand picture has international investors eyeing unconventionals in North America again, particularly the Permian. According to Hirve, here’s why:

Both the Midland and Delaware Basins of the greater Permian allow for producers to make money at $50/b oil. The assets there—horizontal wells either drilled or soon to be completed—are proven. The assets are also in near production stage and this is what international buyers like. They simply want to enter a play and start buying future production. Preferably, the investors could acquire privately held acreage, a scenario that is present Texas where multiple private producers exist. The buyers typically pay in cash, so they want a short-cycle turnaround on their investment. In roughly two to six months, the investments can be paid back. And, the move into an unconventional resource play can help the international investors diversify their portfolios.

Because of the conditions noted above, Hirve believes smaller- to mid-size-entities will begin investing again in U.S. onshore plays, starting first with the Permian followed by others.