The A&D oasis out in the gritty Permian Basin may be slowly evaporating—or not; it’s a tricky place to predict.

But while deals are down there and in other plays in the third quarter, A&D scorekeeping in 2017 may belie a lucrative underground market: one full of swaps and trades, longer laterals and rising working interests.

In third-quarter 2017, deal values fell 58% year-over-year to $23.61 billion, according to PwC. The Permian in particular saw a lull after sustained deal making has apparently rendered it too pricey for most E&Ps.

What’s obscured by statistics is the frenetic pace at which companies are still dealing, just not in easily quantifiable ways. Acreage trades don’t naturally lend themselves to number crunching. How much is a swap worth, considering what is given up for what is obtained? Those sorts of metrics dictate how analysts and firms such as PwC count transactions.

PwC analyzes deals of $50 million or more for its A&D reports. After asking about trades, Joe Dunleavy, PwC U.S. EU&M deals leader, told Investor the firm identified 18 swap transactions during the past 11 years. Half of the total occurred in 2014, he said.

“Some of this is just based upon the description in the data,” Dunleavy said. “We haven’t really, at least in the past couple of years, focused in on it.”

But the emerging trend of blocking up acreage to increase lateral distances—a relatively new phenomenon—adds some logic to competitors’ willingness to bargain.

“There has been a big uptick in land swaps and trades as companies try to increase development efficiencies,” Bill Marko, a Jefferies managing director, told Investor. “One big example is taking individual sections and trading so that they have two sections that they can drill 2-mile laterals rather than 1-mile laterals.”

In the Midland Basin, Earthstone Energy Inc. engaged in some bartering to block up its Benedum prospect in Upton County, Texas. The Jenga-esque move resulted in 2,650 net acres with 95% working interest; 62 gross potential locations; and an increase in lateral lengths to an average of 6,550 feet.

Robert Anderson, Earthstone executive vice president of corporate development and engineering, said he couldn’t really put a number to the swap’s value, other than by examining transaction comps.

“At the end of the day, both parties were happy. We ended up with the same amount of acreage,” Anderson said. “In our own experience we have seen an increase in trades.”

Parsley Energy has been especially active. Through September, it made trades that added 5,600 net acres in the Permian. Parsley said earlier this year it had spotted at least 13 trade opportunities equal to $1 billion in acquisitions.

Parsley said it transformed scattered and nonoperated properties into concentrated properties while raising its average working interest to 85%—up from 25%.

“Recent trades added more than 500,000 net lateral feet to horizontal drilling inventory, on top of 900,000 net lateral feet previously added following the Double Eagle acquisitions,” the company said.

At Double Eagle prices of roughly $36,000 per acre the traded acreage had a ballpark value of $202 million, analysts estimated.

Wattenberg Field and Haynesville are also into primitive A&D.

In October, Goodrich Petroleum Corp. shuffled around about 900 acres from its Metcalf area in the central area of Caddo Parish, La., for a similar amount of acreage in its Bethany-Longstreet area in southern Caddo. Through bartering, Goodrich said, it increased lateral lengths and operated acreage with lower gathering fees.

PDC Energy Inc. shored up its core holdings in Weld County, Colo., with a $210-million acquisition and a separate acreage swap, it said in September.

Even among the largest oil and gas producers, swaps are seen as lucrative ways to make deals and increase value.

Jay Johnson, executive vice president for Chevron upstream, said in a July conference call that the company is managing its portfolio in the Permian through joint ventures, farm-outs, sales and acreage swaps.

“We have identified between 150,000 and 200,000 acres in the Midland and Delaware basins that we plan to transact to generate more immediate value,” Johnson said. “Generally, the highest value transactions are swaps to core up acreage and enhance value through long laterals and other infrastructure efficiencies.”

Those acres may or may not fit into a spreadsheet. But as Albert Einstein observed, “Many of the things you can count, don’t count. Many of the things you can’t count really count.”

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