Oil and natural gas companies with operations mostly located in the core of the booming Permian Basin are poised to see their credit quality improve, while those operating at its fringes should see less of a bump, according to a new report from Moody’s Investors Service.
"E&P companies including Pioneer Natural Resources, Diamondback, Energen, RSP Permian and Parsley Energy all have high acreage concentrations in core counties with outsized Permian exposure, leaving them well positioned to prosper," said Moody's assistant vice president Paresh Chari.
Other firms with operations on the Permian fringes, such as Anadarko Petroleum, Chevron and Occidental Petroleum, would not likely see their credit quality improve just because of their development there, said Moody’s analysts. Legacy Reserves and EP Energy operate in the fringe areas but have moderate exposure, while Approach Resources mostly holds acreage in mainly fringe counties, leaving its credit quality vulnerable—weak well performance or unexpected declines in production being the primary cause, Moody’s said.
Moody’s sees recent acquisitions highlighting the Permian Basin’s booming counties for E&P activity. “Producers have spent almost $27 billion in the past year, targeting mainly the Martin, Glasscock, Howard and Reagan counties in the Midland Basin, and Reeves, Pecos and Ward counties in the Delaware Basin,” analysts said. “Rig counts also help demonstrate which counties are core to the Permian, with most rigs situated in the westward Delaware and eastward Midland basins. At mid-2017, oil production in those basins had risen to about 2.5 million bpd, with another 500,000 boe/d of growth expected by 2018.”
– Nicholas Stern, managing editor