Over the past two years, operators have explored and produced the Permian Basin while acquiring acreage despite the drop in oil prices. While the Permian Basin is rising to the top of U.S. shale plays, it isn’t the only play that is experiencing an increase in production.
According to the EIA, May’s drilling productivity in the Permian had a 71,000 barrels per day (bpd) increase in output, with the Eagle Ford, Bakken, Niobrara and Utica following behind. Another player that is rallying back is the Powder River Basin. Before May 2014, the Powder River Basin was growing at one of the fastest rates in the nation. However, when the price of oil dropped many operators left the play due to the margins between the value of oil and the cost to extract and transport the reserves to refineries.
As the overall U.S. production increases, operators are returning to the Powder River Basin. Over the last 12 months its crude oil production jumped to 1,000 bpd and more drilling is expected. “EOG, Chesapeake, and Devon Energy are planning to spend a combined $600 million” in Wyoming and pipeline operators are following suit (i).
Lower Prices and Favorable Geology
So why are operators flocking to the Powder River Basin? Simply, its land prices are significantly lower than those in the Permian and other plays. In the oil and gas industry, first movers “win” if they can get low prices for land in an emerging field like the Powder River Basin.
The geology at the Powder River Basin is similar to that of the Permian so the big question is, will this play mimic the success of the Permian? All we can do is watch and listen to the big players of the oil and gas industry. And currently, they are gathering assets in the Powder River Basin that suggests a large expansion in that area is coming, and quickly. The most active counties are Campbell and Converse and operators are targeting the Turner and Parkman formations.
Will Powder River Basin bounce back?
In February, a $63 million worth of federal land in Wyoming were leased by the Bureau of Land Management. This large sale caught the attention of the oil and gas community and created an increase of enthusiasm in the Powder River Basin. Just last month, Wyoming netted $1.3 million from an oil and gas lease sale of federal land. 32,000 acres, or 26 parcels, were offered by the Bureau of Land Management in five counties. These sales reveal a higher interest in this basin from both the federal land managers and major operators.
As more land is leased in the Powder River Basin, other costs have begun to increase as well. Drilling permits that went for an easy $1,000 are now reaching $17,000! Also, in the first five months of 2016, 2,303 permits were filed to be drilled and in 2017 that number rose to 3,879.
With outlook improving for the Powder River Basin, a continuous increase in drilling and attention to Wyoming and Montana will occur. As other prolific basins and shale plays prices remain high, formations like the Powder River Basin will offer more efficient and lucrative opportunities for major operators and investors in the oil and gas industry.
If you like to read about alternative investments, oil and gas, real estate, and find out more about hidden markets, make sure to subscribe to our monthly newsletter.