Texas Versus The Cowboy State

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As the crude powerhouse that is Texas’ Permian Basin becomes old news, oil explorers are looking for the next big thing--and they have found it in the more-than 4000 feet of stacked pay in Wyoming’s Powder River Basin. In Powder River, Big Oil has found less-congested pipelines, cheaper land, and more importantly, a whole lot of oil.

It’s not the first time that the Powder River Basin has garnered industry attention. In 2014, when oil prices were soaring, many industry players were already eyeing the basin as the next big thing, but when oil prices waned in the following years many drilling plans in Powder River were abandoned for established operations. Now, as United States crude prices ballooned by nearly 50 percent over the last year, there has been a renewed rush for land deals in oil rich areas, and the Powder River Basin is no exception. Although the deals are largely undisclosed, we know that there have been a number of deals in Wyoming, bringing industry-wide interest to the conventional and shale formations found there.

In the last month the state of Wyoming has seen Oklahoma-based firm Rebellion Energy pay more than $100 million for 19,000 acres, Vermilion Energy spend $150 million for 55,000 acres, and Navigation Powder River LLC spend about $10 million for 3,000 acres. Not bad for a month’s work.

Another potential catalyst for growth in Wyoming oil is currently underway just south in neighboring Colorado, where votes will decide on November 6th whether to further limit the drilling of oil by increasing the buffer zone between dwellings and oil and gas wells to 2,500 feet. If the Colorado electorate votes to increase the buffer, drilling will become impossible in much of the state, a development that with almost certainly push even more investors over the state line into Wyoming, where the laws are friendlier to oil and gas extractors. To highlight this fact, Wyoming gubernatorial candidates were tripping over each other to proclaim their love for fossil fuels, the state’s major jobs creator, in the run-up to the August 21st election, and winner Mark Gordon is strongly backed by Peter Wold of Wold Oil Properties, a prominent figure in Wyoming oil

Now, just this week, the major NPL gas project has finally been greenlit, and its 3,500 wells are soon to follow (much to the dismay, it must be said, of many environmentalists and wildlife activists). The NPL is projected to bring in as much as $17 billion to the Wyoming economy--a particularly large price tag when considering the fact that Wyoming has the smallest population of any state in the nation.

A representative for Juniper Capital Advisors, the financial backer of Navigation Powder River LLC, told Reuters that Powder River is in much the same position that the Permian Basin was in a few years ago, just before it exploded into the fastest growing oil region in the world. Now, the Permian has more oil than they know what to do with, and real estate is at a premium, whereas in Powder River, things are still affordable and accessible--for now.

In large part due to the Permian’s smashing success, the US has quickly become the world’s largest crude oil producer, with soaring export rates, but the production level has far outpacedthe infrastructure. The problem is particularly marked in the Permian, forcing producers like ConocoPhillips and Noble Energy to relocate their rigs and even pause production until there is more pipeline volume available. Even as oil prices have risen in the last year, Permian producers have had to undersell their oil to pipelines in Cushing, Oklahoma. Now, as a result, oil from the Rocky Mountains and Midwest is more than $17 per barrel more expensive than Permian oil.

Now that the Permian has reached its limits, Wyoming can expect a major uptick in drilling. The conditions are perfect, as neighboring Colorado pushes to move away from oil-friendly policy, the oil prices are high, and the incoming Wyoming governor has shown himself to be wide open to drilling expansion. Wyoming’s oil rush has already begun, and unlike in 2014, this time the tide shows no signs of receding.

Haley Zaremba for OilPrice.com