Denver-based oil and gas company Sitio Royalties continued to up its presence in the Permian Basin, buying up more land in the U.S.’ busiest oilfield as energy markets continue to grow amid renewed demand following the COVID-19 pandemic.
In April 2020, the price per barrel of domestic oil fell as low as -$40 a barrel amid travel and busines restrictions intended to slow the spread of the virus but also stymied energy demand.
But as vaccines became widely available, restrictions were lifted and demand quickly outpaced supply after production was reduced following 2020’s plummeting prices.
To capitalize on this growth, Sitio Royalties announced July 26 it closed the purchase of 12,000 acres of oil and gas land and royalties in the Permian from Momentum Minerals for about $219 million.
In June, the company announced it also bought 19,700 acres in the region from Foundation Minerals for about $323 million.
The two sales were Sitio’s fourth and fifth purchases of 10,000 or more royalty acres since June 2021, growing the company’s total acreage by 300 percent, and its Permian Basin footprint by 30 percent, per a company announcement.
Upon closing, Sitio added 24,5000 acres in the Delaware sub-basin on the western side of the Permian, and 7,400 acres in the Midland sub-basin to the east.
Specifically, in Eddy and Lea counties in southeast New Mexico, and Loving, Martin and Midland counties in West Texas, the deals added 13,200 acres to Sitio’s portfolio – a 160 percent increase.
Noah Lockshin, chairman of Sitio’s Board of Directors said the purchases were intended to consolidate acreage and drive-up returns for shareholders, part of trend of energy companies prioritizing existing producing lands rather than ramping up new production in the wake of COVID-19.
“The acquired assets are in highly valued areas of the Permian Basin, meaningfully increasing our line of sight to strong production growth in the near-term and providing substantial remaining inventory,” Lockshin said.
Chief Executive Officer Chris Conoscenti said increasing the company’s holdings in the Permian was hoped to increase profits.
“We are excited to announce these highly accretive acquisitions in the Permian Basin and continued execution of our returns-focused, large-scale mineral and royalty consolidation strategy,” Conoscenti said.
“We expect our shareholders to significantly benefit from efficiencies due to the increased scale of the Company and a substantial increase to our dividend.”
Sitio was joined by Nevada-based Orion Diversified Holdings in buying land in the Permian last week, as that company said it closed on acquiring 6,360 acres in Garza and Lynn counties in Texas, expected to product 35 barrels of oil per day and 10,000 cubic feet per day of natural gas.
CEO Tom Lull said the company was hoping to continue acquiring lands in the region, focusing on the Wolfcamp and Sprayberry shale formations along Texas’ western border to southeast New Mexico.
“We are currently negotiating to acquire more operated properties in the Permian Basin,” Lull said. “The Wolf Camp Shale and Sprayberry fields are the largest onshore oil and gas fields by daily oil and gas production volume in the United States.”
Production of both oil and gas in the Permian Basin was expected to grow this month, with the U.S. Energy Information Administration predicting 78,000 more barrels per day (bpd) in August than in July for a total of about 5.4 million bpd.
For natural gas, the EIA forecast August production would increase by 166 million cubic feet per day (cfd) in the Permian this month, for a total of about 20.5 billion cfd.
That expected growth in fossil fuel production followed the addition of two oil and gas rigs added to the Permian for its total of 351 as of Friday, per the latest data from Baker Hughes – the most of any of the U.S.’ active drilling regions.
New Mexico added one rig in the last week, records show, for its total of 110 rigs, while Texas increased by six rigs for a statewide total of 371 rigs.
By the end of 2022, international energy analytics firm Rystad Energy predicted U.S. gas production would surpass 100 billion cubic feet per day, an all-time record Rystad credited with surging global energy demand.
Senior Energy Analyst with Rystad Kristine Vassbotn said the key obstacle to U.S. growth in gas production was limit capacity to move the gas to market.
“Already the top gas producer in the world, the US stands ready to boost output further to meet the global demand, but takeaway constraints are a serious risk,” Vassbotn said. “However, with new LNG capacity expected to be added after 2024, the US is set to grow its role in global gas markets for some time to come.”