The price war in the Permian Basin—as public and private E&Ps bid against one another—may be just getting started.

But the scouting reports for acreage may as well be obsolete. Increasingly, A&D efforts should be searching out the zones beneath, instead.

The big run-up in prices ended in October with Occidental Petroleum Corp. spending $2 billion for 35,000 net acres in the Delaware Basin. It was the fifth Delaware transaction of 2016 to eclipse $1 billion and one of the most expensive. Oxy paid $42,000 per acre or more, depending on how production is valued.

CEOs and analysts say Permian acreage prices are not leveling off any time soon. With much of the Permian Basin leased, E&Ps are in a tug of war between the haves and have-nots.

At Hart Energy’s Executive Oil Conference on Nov. 8, Permian rock stars Scott Sheffield, chairman and CEO of Pioneer Natural Resources Co., and Randy A. Foutch, founder, chairman and CEO of Laredo Petroleum Inc., said escalating prices have an underlying logic.

Sheffield told Investor he doesn’t see prices getting tremendously higher “until we see oil prices get up to at least $60.” In August, Pioneer closed on Devon Energy Corp.’s 28,000 Midland Basin acres for $435 million. Some of the acreage, which cost Pioneer about $15,500 per acre, was undeveloped.

Then again, Bernstein Research recently made the startling prediction that land could reach $100,000 per acre in the Permian. Sheffield doesn’t see prices getting quite as high as Bernstein envisions, but he agrees with the firm’s larger point.

In short, the Midland and Delaware basins shouldn’t be judged so much by acreage prices as by the zones beneath the wells. Bob Brackett, senior analyst with Bernstein, said higher prices are a function of transactions being made on a per-well basis that distinguish between top and bottom tier acreage.

Sheffield said that with efficiency gains, a typical well location has a present value of $80,000 to $100,000 per acre.

“People can afford to pay in the $40,000 to $60,000 range,” he said.

The updraft of prices is more a “combination of too much money chasing too few deals, coupled with the fact that the economics of the Permian are the best in the U.S.”

At $40,000 per acre, putting those ingredients together can still generate a 15% to 20% return, Sheffield said. “That’s why you’re seeing the prices bid up on all these types of transactions. Most of them are in the Delaware, because most of the Midland Basin has been purchased, and there are very few opportunities left.”

Sheffield said that high prices require that companies hit the ground running when they make a deal.

“If you can drill a three-well pad and hit three zones, that improves your economics even more so. If you’ve got six zones it helps,” he said. “If you sit there and buy something and wait three years or five years to drill it, you can’t afford to pay” high acreage prices.

Rigs have to be moved in swiftly with an eye toward developing more than one zone.

“One zone will at least give you a decent return,” he said. “Having a second zone and third zone will improve the economics even more.” The recent lurch forward in the Permian’s rig count is partly due to companies moving quickly to deploy rigs, he said.

Pioneer built its 785,000-acre position in the Permian Basin’s Spraberry oil field over decades through property acquisitions, mergers and exploratory efforts.

Laredo moved to purchase much of its 127,000 net acres for $1,000 per acre or less, Foutch told Investor. “We stopped buying when we couldn’t block it up appropriately.”

Laredo operates high-efficiency production corridors that combine infrastructure with extremely long laterals—more than 13,000 feet—to maximize value.

“We knew when we bought our first acreage in the Midland Basin in early 2009 and 2010 that it needed to be blocked up,” Foutch said. “We bought acreage that had no production on it … that was blocked up because we had this view of how this acreage was going to be developed.”

Foutch said elevated acreage prices have resulted from the difference between “people who have good acreage and good rocks, and the people who don’t.”

Longer lateral lengths continue to be the driver for Laredo. The company has made bolt-on acquisitions, including its July purchase of 9,200 net acres in Glasscock and Reagan counties, Texas, for $125 million.

Generally, the company is unwilling to make an acquisition unless the acreage is superior to what it already owns or has a strategic benefit. “We just haven’t seen a lot of acreage that we think fits that criteria,” he said.

Instead, Foutch said, established operators are realizing they need to cooperate to maximize their holdings. “There are some swaps going on. Right now, as we speak, we know of them; we’ve already done some,” he said.

The next big wave of sales pitches to hit the Permian may just be E&Ps convincing their neighbors to work together.

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