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Announcement: Moody's: Permian basin activity could lift credit quality of some E&P companies
Global Credit Research - 22 Sep 2017

Toronto, September 22, 2017 -- Oil and natural gas producers operating in the booming Permian Basin could see their credit quality improve, depending on their level of exposure and the location of their operations, Moody's Investors Service says in a new report. Companies with operations primarily in the core of the basin are well positioned to improve their credit profile, while those operating closer to the fringes will benefit less.

"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.

Firms with mixed acreage could also see their credit quality improve, if they focus on developing core acreage, Chari says in "Exploration and Production - US: Booming Permian Basin driving US growth, especially in Midland and Delaware basins." Concho Resources holds mixed acreage and has high production concentration in the Permian, while Encana Corporation has a high core percentage and medium concentration to the Permian, and EOG Resources has mixed acreage and medium Permian exposure.

Meanwhile, several diversified companies with significant operations in the Permian, such as Anadarko Petroleum, Chevron and Occidental Petroleum, would likely not see their credit quality improve solely because of their development there. Legacy Reserves and EP Energy operate in fringe areas but have moderate exposure, while Approach Resources is a pure-play Permian producer that holds acreage mainly in fringe counties, with such positioning leaving its credit quality vulnerable to weak well performance or unexpected declines in production.

Recent acquisitions offer insight into the Permian Basin's hottest counties for E&P activity today, Moody's says. 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. 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.