Arthur D. Little Goes Big

Report: Permian will need $300B over next 5 years to maintain growth


Consulting firm Arthur D. Little has released a report (trying to get my hands on it!) that forecasts some big growth in extracted BOE, wells, and related CAPEX.

The Permian, which is the top oil producing field in the United States, is producing more than 3.4 million barrels of oil a day. Growth of 3 million barrels a day by 2023 would put it near 6.5 million barrels a day, a production level above Canada, Iran and Iraq.

Summary of the report from Rigzone:

Data in the report forecasts Permian activity through the next five years to:

-Rise by up to 3 million barrels of oil equivalent per day

-Possibly produce up to 5.4 billion barrels of oil equivalent per day

-Have a need for up to 41,000 new wells (mostly unconventional) to be drilled to meet production outlook

-Require more than $300 billion in capital expenditures (CAPEX) to keep pace with growth projections

Implications for TPL are many.  We have to assume some of the projected new wells will be either on mineral interest land or sundry income producing surface land.  It is also reasonable to project that growth in water needs will move linearly should AD Little’s forecast come to pass.  Lastly, easements for pipelines, roads, and other infrastructure would be expected to grow in number and in total contribution to top line under the scenario detailed above.

I’m seeing chatter about $30yr/EPS as being a reasonable possibility after you annualize the expectations for Q3.   $30 EPS puts the trailing multiple at 29X with the stock at $864 as I type.  If a doubling in production is not unreasonable (per above) then we’re looking at a 14.5X multiple on future earnings for a company with significant hidden assets.