With the Permian Basin increasingly snatched up by big publics, smaller E&Ps are exploring runway in other Lower 48 plays, according to a Jefferies expert.

The core acreage of the Permian Basin has largely been consolidated into the portfolios of a handful of public producers, said Pete Bowden, managing director and global head of industrial, energy and infrastructure for Jefferies.

The largest recent deals have included Exxon Mobil’s $60 billion acquisition of Pioneer Natural Resources, Diamondback Energy’s $26 billion acquisition of Endeavor Energy Resources and Occidental’s $12 billion acquisition of CrownRock LP.

“You have a dynamic where the big guys are buying up or have bought up the best delineated geographies,” Bowden said during Hart Energy’s Executive Oil Conference & Expo in Midland, Texas.

Smaller producers, in Jefferies’ view, should be looking outside the Permian for lower cost drilling locations.

“Intrepid operators” are already hard at work exploring more nascent oily areas in the Lower 48, including Utah’s Uinta oil play, the Midcontinent’s Cherokee oil play, the Ohio Utica oil window, Wyoming’s Powder River Basin and the Pearsall Shale in South Texas.

In natural gas exploration, Comstock Resources and Aethon Energy Management are the leading producers testing the ultradeep Western Haynesville extension north of Houston.

The Uinta and Powder River basins are attracting M&A interest by larger operators, too. Public E&P SM Energy closed an acquisition of leading Uinta producer XCL Resources in October.

SM acquired an 80% undivided interest in XCL’s assets for $2.1 billion, while Northern Oil & Gas (NOG) picked up a 20% non-operated stake. The total purchase price was approximately $2.6 billion.

And Ovintiv recently divested a $2 billion package of Uinta assets to private operator FourPoint Resources LLC.

In Wyoming, Occidental recently divested a package of Powder River Basin assets to Anschutz Exploration.

Dealmaking is also heating up in Oklahoma’s Cherokee oil window. Midcontinent E&P SandRidge Energy closed a $144 million acquisition in the Cherokee play from Upland Exploration earlier this year.

“You have seen some well results out of emerging plays that are competitive with the Permian,” Bowden said.

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Going deep in the Permian

Outside of new geographic exploration, operators are also pushing into less-developed benches in the Permian Basin to find new locations.

Newer targets in the Permian include the Wolfcamp D, Upper Spraberry, Dean, Clear Fork, Barnett Shale and Woodford intervals.

“We don’t believe in these strata just because we’re selling them,” Bowden said. “We believe in them because we’ve seen early well results and we’re optimistic that there are targets in the Permian that are still in the nascent stages.”

The most active operators delineating these less popular zones include Avant Natural Resources, Birch Resources, Continental Resources, Occidental, SM Energy, Tap Rock Resources and Franklin Mountain Energy.

The Barnett Shale is generating substantial interest in the Midland Basin, up against the flanks of the Central Basin Platform.

Operators are testing the super-deep Woodford Formation near the platform’s edge in the Delaware Basin.

Marathon Oil, through wholly owned subsidiary Bosque Texas Oil LLC, has been one of the most active operators testing the Woodford in Ward and Winkler counties, Texas, near the Central Basin Platform.

“There are some good wells being drilled in locations that historically would’ve been called Central Basin Platform that are now being called Permian,” Bowden said.

New technologies and drilling techniques will continue to push the boundaries of the Permian even further out into the future, he said.

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