Permian Cash Flows Driven by Low Costs, High Productivity

Permian cash flows

With the increase in capital expenditure and production, cash flows in the Permian Basin are also expected to rise by 2021. Cash flows in Wolfcamp Delaware are forecast to exceed $8 billion by 2021. In Wolfcamp Midland, cash flows are expected to exceed $4 billion by 2021.

Permian Cash Flows Driven by Low Costs, High Productivity

Higher cash flows in the region are as a result of lower costs, higher productivity, and increased hedging activity by producers.

We’ve already looked at trends in Permian costs and productivity in the previous parts of this series.

Hedging activity in the Permian

According to an IHS Markit report released in July 2017, key oil-weighted producers operating in the Permian region had 65% of their remaining oil production hedged at an average price of $50 per barrel. That compares with just 19% of oil production hedged in 2017 by non-Permian oil-weighted peers.

For 2018, Permian producers have hedged 25% of oil production, while non-Permian exploration and production companies are largely unhedged for oil.

According to IHS Markit, Concho Resources (CXO), Parsley Energy (PE), and Laredo Petroleum (LPI) are key Permian producers with the best downside protections. Even if prices were to fall to $35 per barrel, they have hedged prices above $50 per barrel in 2017 and 2018.