Nissa Darbonne, executive editor-at-large, Hart Energy: Thank you for joining us. I'm Nissa Darbonne, executive editor-at-large. I'm visiting with Steve Pruett. Steve is founder and CEO of Elevation Resources, in addition to being chairman currently of the IPAA [Independent Petroleum Association of America]. We're going to talk about his oil and gas operations, which are in the Permian Basin. Steve, what formation are you most focused on these days in the Permian?
Steve Pruett, founder and CEO, Elevation Resources: So we're solely focused on the Barnett, which is part of the Mississippian interval in Oklahoma, and the SCOOP/STACK—they refer to it as the Meramec. So it's this hybrid reservoir of shales and silt stones and limestones. So it's got an interesting mix of source rock and delivery rock all in one package.
ND: Well, you mentioned the Meramec, and I know that Pioneer is doing some pilots in the Barnett in the Midland Basin. And I know that Marathon is rolling out after doing some wildcatting, if you will, in the Meramec in the Eastern Delaware. So you [in the] Barnett in the Central Basin platform would just kind of be along that trend, but yours is technically shallower.
SP: Yes. The deepest play is Marathon’s. And what's interesting is Elevation hosted a data room in 2018 about the Barnett. It was a workshop and we had 32 companies come through the data room. Fourteen were public companies, including the names of the companies you just mentioned. And it's like we scattered seeds in the wind and they planted in Winkler County and the Delaware for Marathon. And that is deeper. They're also testing the Woodford, and in the Midland Basin where [Occidental’s] drilling just north of Midland, and now as you mentioned, Pioneer is planting four wells in the Barnett and Woodford, and I'm not sure what the mix is in their acreage in the Midland Basin, which is quite interesting. So it's taken a few years. Of course, commodity prices recovery helped, or at least oil prices are up. Gas not so good. But it's heartening to see this play take shape now after so many years from our discovery in 2016.
ND: And after all of these years, I think this is Elevation’s…10th anniversary. You know, kind of thinking of the meme of ‘this is how it started and this is how it's going,’ tell us how it started, what came in the middle and how it's going.
SP: Well it started with an acquisition of five prospect areas from Samson Resources who had sold most of their production so we were just buying raw acreage and a few wells. And this asset that we're now exclusively developing was sort of an afterthought. It had six vertical wells. What we were really buying were a couple of assets in New Mexico in the southern Midland Basin. Then we did grassroots leasing in the Delaware. This was all 2013 and [20]14. Oil was over a hundred dollars a barrel, gas was over $4. So we had a lot of commodity tailwind, but there were very few wells in the Delaware that had enough data to even know what the reserves were. And sowe bought leases in areas that it was available where we could block it up for less than $2,500 an acre.
But the lesson learned is, for a private equity-backed company, we were ahead of ourselves. We should have waited for more industry drilling and we jointly developed some of that acreage in the southern Delaware while our neighbors, public company neighbors, were also drilling it. And we all found out we were in some bad areas. We were close to good areas, but if you're not in the right play, if you're under pressured and faulted as we were, it's just not going to work. So fortunately, we have a very patient sponsor in Pinebrook and we were able to pivot and wind down those efforts. We sold some of them for a profit, some of them for a loss, collected all that resource, paid down debt and applied it to developing our Barnett asset in Andrews County, which we discovered in 2016. And just people don't realize, but oil prices have been very weak. From the period of 2015 to 2020, we averaged $46/barrel and 95 cents per MCF for our gas. So that was a very difficult period to generate returns, doing really what was step out drilling. And fortunately, 2022 was a great year, but this year, once again, natural gas prices in the Permian are very weak, which creates a headwind for drilling the Barnett, which is ultimately about 60/40 oil and associated gas with NGLs.
ND: There's an expectation with the OPEC+ cutback. Well, actually the '+' part kind of blows my mind because Russia's not really supposed to be, you know, selling oil to most of the world anyway. But an additional production cut with Saudi Arabia, at least in particular, really wanting at least $100. The market futures haven't really responded to that yet, even though it started May 1st. But there's this ongoing expectation for $100 oil by December. What are your thoughts?
SP: My thoughts are that when oil gets to triple digits and gasoline prices get to $4—and that's just our U.S. perspective—but if you think about developing countries, there's a lot of demand destruction. And every time we've seen $140 oil, it's very brief and it rolls over because consumers respond, manufacturers respond. Even in our case, we consume a lot of diesel drilling and fracking wells, and diesel went to $4.80 is now about $2.80 and that helps our economics. You know, diesel and petroleum [are] used in a lot of processes, there's a lot of energy consumed in energy and a lot of that in making energy, and a lot of that is diesel. And so at some point it curtails economic activity and it's self-correcting. So most of the oil men I know, including this oil man, prefers to see stable oil in the $70 to $80 something range so it's predictable, rather than these spikes followed by $40 oil or negative oils we saw briefly in in 2020.
So that's my opinion. The answer is, could we get to a $100? Yes. If we do, I don't think it's sustained. Now beyond five years, things are murky if you get further out. And we're under investing, as Wil VanLoh spoke about earlier today, and other analysts. And so at some point, if the world continues to consume more oil, which we all expect, there will be a day of reckoning. But that's beyond my visibility.
ND: Super. Thank you very much. And thank you for joining us. We're visiting with Steve Pruett, founder and CEO of Central Basin platform operator Elevation Resources. Please stay tuned to hartenergy.com for all of the oil and gas, and all of energy's, actionable business intelligence.
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