Oil, gas markets recover slightly from COVID-19, investments return to Permian Basin

Oil and gas investments could be trickling back into the Permian Basin as the industry shows minor signs of its recovery from the COVID-19 pandemic.

The health crisis led to states across the U.S. and other countries instituting travel restrictions and polices aimed at slowing the spread of coronavirus and led to a significant decline in fuel demands.

In April, the price per barrel of oil fell below $0 for the first time in history and production slowed in the Permian Basin, which stretches from southeast New Mexico to West Texas, and other oil-producing parts of the U.S.

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But last week, an announcement that Pfizer had developed a vaccine for COVID-19 drove the price per barrel up above $40 per barrel for the first time this fall.

New Mexico added three more rigs for a total of 53 as of Nov. 13, per recent data from Baker Hughes, continuing an upward trend that started on Nov. 6 as the state record 50 rigs – the first time since COVID-19 hit that New Mexico added rigs following a gradual decline throughout the year.

Texas’ rig count also grew to 142 on Nov. 13, after the state averaged 122 in October.

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The Permian Basin as a whole added seven rigs in the last week for a total of 154 as of Friday compared with 147 a week ago.

That news came amid new oil and gas projects going into the Permian during the slight uptick in market optimism.

U.S. Energy Development Corporation, an oil and gas operator based in Arlington, Texas announced on Nov. 10 a partnership with ExxonMobil subsidiary XTO Energy to develop an area in Eddy County for horizontal drilling in the Wolfcamp Shale.

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The Wolfcamp shale is a zone in the Delaware Basin on the western side of the greater Permian which was identified in November 2018 by the U.S. Geological Society to hold the largest oil and gas resources ever discovered – about 4 billion barrels of oil and 280 trillion cubic feet of natural gas.

The $16 million project saw U.S. Energy acquiring a working interest position in XTO’s Poker Lake, a nine well horizontal development project seeking to extract oil and natural gas from the Wolfcamp.

Drilling was underway, with production expected in early 2021.

The total development cost of the project was estimated at more than $97 million.

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U.S. Energy Chief Executive Officer Jordan Jayson said the move was intended to expand the company’s presence in the region in New Mexico, taking advantage of incentives offered by the state for the development.

In the last year, U.S. Energy deployed more $93 million in the basin and intended to continue evaluating expansion opportunities in the area, per a news release.

"The Poker Lake project is located in an Opportunity Zone, which is attractive because of the additional tax incentives offered in these areas," Jayson said. "Our team is focused on providing our investors and institutional partners with excellent investment opportunities. We are looking forward to working on this project and expanding our footprint in the Permian Basin."

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As oil and gas is produced in the Permian, added and expanded pipeline systems were needed to handle the increased volume of fossil fuels being sent to market.

WhiteWater Midstream announced it completed a 1.8 billion cubic feet per day expansion of its Agua Blanca natural gas pipeline system connecting Permian Basin gas processing sites with the Waha Hub in West Texas where the gas can be sent east to for the exportation and refinery markets on the Gulf Coast.

The expanded system was expected to go online in early 2021.

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Currently, the pipeline system is connected to 20 gas processing facilities in the Delaware Basin, moving gas from Edd and Lea counties in New Mexico and Culberson, Loving, Reeves, Pecos Winkler and Ward counties in Texas.

The expansion meant adding a 42-inch trunk line that doubled the system’s capacity to more than 3 billion cubic feet per day, increasing takeaway capacity for operators in both states.

WhiteWater Chief Executive Officer Christer Rundlof said the expansion will mean more capacity for operators as the market recovers.

"We are excited to bring this expansion into service ahead of schedule while continuing to provide reliable and transparent transportation services to producers and processors in Texas and New Mexico," he said. "(WhiteWater Midstream) remains committed to developing premier Permian basin residue assets as markets normalize and growth resumes."

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