Permian Constraints

Permian Takeaway Fills Energy Executives’ Thoughts

Sorry for two non-TPL-specific articles on the same day.  It’s not my intention to turn this into an energy news blog.  That said, I think this article provides a really good lay of the land for the current state and circumstances of West Texas.  The area is in full boom mode and is suffering from lack of takeaway (oil transportation infrastructure) and other constraints such as rising wages, employee mobility, jammed roads, and higher general input costs.

Like 2015/2016, it is probably reasonable to assume that too much $$ will be thrown at these problems and perhaps, in the long run, the area and infrastructure could be overbuilt.   The boom / bust / boom / bust “feature” of West Texas remains a key to mentally modeling and valuing the unique entity that is TPL.

Some comments from industry executives were included in the article linked above:

  • Pipeline and trucking constraints in the Permian Basin are hurting us now. There was a $13 per barrel price deduction for August, and I hear it may go to $20 per barrel. This, over a long period of time, is going to impact my drilling program.

  • We are still lacking enough qualified drivers who are able to pass motor vehicle record checks and Department of Transportation preemployment drug tests. Additionally, the market is so competitive for drivers that they will jump ship for an extra 50 cents per hour.

  • We saw two factors capping growth in the second quarter. The Permian pipeline capacity and discount on WTI [Midland] have slowed completions. We expect to see fewer wells completed in the second half of 2018. Many E&P companies will spend their budgets for 2018 before the end of third quarter 2018. This higher spending rate was a result of higher efficiency and higher service company prices. The net result will be a decline in total completions in the second half of 2018. We think a rebound will happen in first quarter 2019, but the Permian will continue slow growth until the pipeline capacity is increased and the WTI [Midland] discount is eliminated.

One thought on “Permian Constraints

  1. A historical PE of at least 40X is not unheard of for TPL. Assuming $30 share year end earnings, then there is still a lot of room to run for the rest of 2018. Started 2018 at $400+ and is now $800+ A similar move may be in the cards fpr 2019

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