Investments grow in the Permian Basin as oil and gas market shows signs of recovery

An American energy investment company pledged $8.5 million to a project to develop oil and gas assets in the Permian Basin owned by Shell Oil Company.

U.S. Energy Development Corporation announced the transaction on Sept. 16 to acquire interest in the horizontal well development project in Loving County near the New Mexico-Texas state line.

The Columbia Project’s total development cost was estimated at about $24 million and will include three horizontal wells in the Permian.

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The development will target the Wolfcamp Shale, part of the U.S. Geological Survey’s 2018 discovery of the largest continuous oil and gas resource in history.

Along with the Bone Spring Formation, the discovery was reported to include 46.3 billion barrels of oil and 281 trilling cubic feet of natural gas along with 20 billion barrels of natural gas liquids.

Drilling and completion operations in the Columbia project were completed and extraction operations were expected to begin by the end of 2020.

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U.S. Energy Chief Executive Office Jordan Jayson said the company has already seen success in the Permian Basin and hopes to expand its footprint in one of the U.S.’ most productive oilfields.

In 2019, the firm acquired operations in Ward County, Texas which neighbors Loving County, and began operating three other Wolfcamp wells with plans to invest another $40 million into the project by the end of the year.

“Our team is always looking for opportunities to provide our investors with high quality projects,” said Jayson said. “We have historically found great success in the Permian Basin and look forward to further expanding our footprint in the area.”

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The investment comes months after a recent historic decline in the oil and gas market brought on by the COVID-19 pandemic and slumping fuel demands, as oil and gas companies seek to put themselves in strong positions to capitalize on the prolific Permian Basin as global fuel demand gradually recovers.

In April, the health crisis led to the price per barrel of domestic crude to plummet to about -$40 per barrel, the first time prices had fallen below $0 per barrel in history.

The price per barrel of domestic crude was reported at about $39 per barrel, per data from the Chicago Mercantile Exchange, and was expected to rise above $41 per barrel by March 2021.

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Global petroleum demand fell from about 100.7 million barrels per day in the first half of 2019 to 90 million barrels per day in the first half of 2020, per a Tuesday report from the Energy Information Administration (EIA).

But the market did see some support through exportation as U.S. crude oil exports averaged 3.2 million barrels per day in the first half of 2020, the EIA reports, up from 2.9 billion in the first half of 2019.

This increase was led by exports to China, read the report, which grew by 213,000 barrels per day in the first half of 2019 to an average of 361,000 barrels per day in first half of 2020.

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Exports to China continued to increase in the spring and early summer with 1.3 million barrels per day in May and another 700,000 in June, read the report, making China the largest destination for American crude during those months.

Meanwhile, the U.S. oil imports saw declines this year as more oil was produced domestically as fuel demands declined.

During the first half of 2020, U.S. crude oil imports averaged 6.2 million barrels per day, the report read, down 12 percent compared with the first half of 2019.

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Monthly imports declined “significantly” in April, when prices saw the biggest decline, but increased in May and June, read the report led by imports from Saudi Arabia which increased from 400,000 barrels per day in April to 1.2 million barrels per day in both May and June.

The increased imports from Saudi Arabia followed a spike in its oil production, the report read, due to the expiration of production cut agreements from the Organization of Petroleum Exporting Countries (OPEC).

The country’s crude oil production rose to 11.6 million barrels per day in April, the highest level reported by the EIA’s monthly data since 1993.

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But as OPEC’s new production cuts went into effect, U.S. oil imports from Saudi Arabia fell to 513,000 barrels per day in July and 311,000 barrels per day in August as the country’s output declined.

Robert McEntyre, spokesman for the New Mexico Oil and Gas Association said investments during the low price environment experienced by the oil and gas industry would better prepare operators for the market’s ultimate recovery.

“Prices seem to be responding to some of the production curtailments since early spring. But our recovery is heavily dependent on our ability to recover from the pandemic and restore people’s ability to return to some form of normal life,” he said.

"But the geology has not changed. The longer-term value of those resources has not changed.”

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.