Source: Energy Information Administration (EIA)

?The Permian Basin continues to produce extremely high A&D metrics. E&P master limited partnership (MLP) acquisitions contributed mightily to the extraordinary values from 2006 through 2007. However, some experts predicted that, without MLP upward pressure in terms of both acquisitiveness and ready capital, Permian sale values would decline in 2008.


Yet, in a two-day online auction for a large independent oil and gas producer in April 2008 the proceeds exceeded $24 million. This proved that there is no reduction in buyer fervor for acquiring operated and nonoperated interests in a basin that is still producing more than 10 billion cubic feet of gas equivalent per day.


EnergyNet has seen Permian working-interest auction values move from $50,917 per barrel of oil equivalent (BOE) per day in 2006 to $34,114 in 2007, then $66,488 in June 2008. The April 2008 sale topped not only all other basin values but also the Permian Basin 2008 average.


Granted, West Texas Intermediate has increased from $66 to $110-plus, and Henry Hub gas has gone from $6.94 per million Btu to $9.70-plus. That 40% increase would account for the 31% sale metric rise, but this price increase leads to the question: How do you explain the April sale which is a 57% increase from the 2006 average Permian metrics?


Consider a phenomenon we have noted over the years that we call the “Major Factor.” The Major Factor is a subjective but very real effect that tends to produce higher sale prices for major and large independent oil companies. There are many reasons for this inflationary phenomenon, including:


• The buyer perceives little need to discount the value for title concerns;


• The buyer feels that these properties have been well maintained, in most cases; and


• In the case of the April sale, buyers knew the seller was exiting the region, indicating the probability of remaining upside and reserves.


The April sale averaged more than 200 potential bidders conducting due diligence on each lot for a total of 2,788 unique individuals or entities. The 13 lots were viewed an average of 1,329 times during due diligence for each property amassing a total of 17,272 views. Some 145 unique bidders placed 710 bids on the 13 lots. The multiples of the trailing six months of cash flow ranged from 37.29 months to 176.54 months.


Flowing-barrel numbers fell in a range from $70,000 net BOE per day to in excess of $100,000. The mid- to high end of these ranges indicates buyer belief in the existence of significant upside.


While resource or unconventional plays are grabbing headlines, legacy provinces like the Permian Basin continue to produce very dramatic sale metrics and an enthusiastic buyer audience.

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