In my most recent article, I covered the Delaware Basin. This play is one of the best in the US. The lower for longer thesis with respect to oil prices makes it very important for the investor to focus on the lowest cost plays. Operators that can operate at $40/bbl WTI have a much better chance of survival than those with higher breakeven prices.

(Source: Bloomberg Research)

The above graph is provided by Bloomberg Research. It has not only broken down breakeven prices by play, but also county. This provides pinpoint accuracy and a better view of where the lowest cost plays are located. The Delaware Basin in Reeves County has the lowest breakeven price at $25/bbl. DeWitt County in the Eagle Ford is at $27/bbl. The best Bakken wells are in the Mandaree area of McKenzie County. This leasehold was surveyed in my last article, and is at $30/bbl. The Midland Basin is represented by Howard County's Spraberry play at $30/bbl. The Wolfbone play as a whole (Delaware Basin) averages just $32/bbl. The Bone Spring is just $32, and is the lowest horizontal play average. The Spraberry (Midland) and Bakken plays average $40/bbl. The Wolfcamp play average is $43/bbl.

The Delaware Basin currently has two main targets. This includes the Bone Spring and Wolfcamp. Both have multiple intervals, so there are additional targets in each. The Wolfbone is also in the Delaware and is a low cost vertical play. This allows operators to drill a number of horizontals and infill using vertical wells. 

(Source: Emerald)

The above map provides a more up to date location of both the Wolfcamp and Bone Spring. It also shows where natural gas, as a percentage of resource, increases. The more natural gas produced, the higher the well pressures. This has provided some excellent results.

(Source: OilandGasInvestor Permian Perseveres)

The gas-prone Wolfcamp provides some huge EURs, and much lower breakevens throughout the play. As we move from east to west, we also see the play deepen.  It is at its deepest in the Lea/Loving area. 

The biggest question is how to play the Delaware. It can be difficult to locate all of the acreage holders, but we will try to provide at least a good snapshot of who is where. 

Matador (MTDR) is a relatively large acreage holder when compared to its market cap. It was originally an operator in the Eagle Ford, but moved to the Delaware in response to lower oil prices. 

(Source: Matador)

It has 91,100 net acreage in west Texas. This equates to 1,427 locations. Not all of its acreage is shown, as it has some in the southern part of the basin.  It has an excellent well design and seems to do about as well as any other operator with respect to source rock stimulation.  Its acreage in the Loving area is not that large, but it is in the core and has a decent number of locations. There is some question as to how good its acreage is in the north. There have been some tests but this is why its EV/EBITDA tends to trade a lower range than other operators in the basin. 

EOG Resources (EOG) isn't as levered to the Delaware Basin, but it has acreage in the core. This includes Lea, Loving, Reeves and other counties.

(Source: Welldatabase.com)

The above map provides an idea of cumulative oil production from wells since January of 2013. It has focused on Lea County, but there are other areas of note.  Reeves County also seems to be producing well in the south. EOG currently states that the Eagle Ford is its flagship play. This could change as its 200,000 net acres (approximate) could prove more valuable.

Apache (APA) has over 3.3 million acres in the Permian, but much of this is in Midland and the Central Platform.

(Source: Apache)

29% of its 2016 cap ex is going to the Permian. Although this is a relatively large number, it is not as focused on the Delaware. 

Occidental (OXY) produces more oil and gas from the Permian than any other operator. The graph below provides all of the top producers. Occidental has 1.5 million acreas in the play, and a large percentage is located in the Delaware.

(Source: Occidental)

Occidental has a large core position in Reeves County. The more development we see, the larger the Bone Spring and Wolfcamp footprint seems to get.

(Source: Occidental)

It also has a large position in Eddy County, New Mexico. This acreage is very good, and should continue to get better as operators de-risk. Since there has been less traffic in the Delaware than Midland, there could be more upside. As oil prices increase, we should see more locations into source rock that had been untested.

Concho (CXO) is the third top producer in the Permian, and has a large position in the Delaware. It has 250K net acres in the northern play.

(Source: Concho)

It is targeting the 2^nd Bone Spring, Wolfcamp and Avalon. The Avalon is starting to shape up and looks to be profitable at low oil prices. It has an additional 125K net acres in the southern part of the play.

(Source: Concho)

It has 4 horizontal rigs in both the north and south. It has an additional 100K net acres in the New Mexico shelf. This is located in northern Eddy and Lea.  It is a shallow play, so well costs are lower. Matador is another name working this prospect. 

Devon (DVN) has approximately 300K net risked acres in the Delaware Basin. This equates to 16,300 gross unrisked locations. 

(Source: Devon)

Devon has more acreage in the northern play, and less exposure to the south. Its main target is the Bone Spring, but the Wolfcamp, Leonard and Delaware Sands are all prospective in parts of its leasehold. Devon seems to be more focused on the STACK in Oklahoma. It will spend 37% of its 2016 cap ex there. The Delaware will receive the second most at 21%.  Devon recently sold Midland assets worth $1 billion. It did this while maintaining is leasehold in the Delaware. This seems to show it values the western Permian more. 

There are a large number of operators in the Delaware Basin. We only covered a small number in this article, but will cover more names in part 2 of this series. The recent downward move in oil price has not affected many of the Permian focused operators. Many funds had been underweight energy in 2016, and when the market began to improve it struggled to add shares. This continues as funds buy on every dip. We expect this to continue as well costs decrease and production per well increases. Since Reeves and Loving counties have some of the lowest breakevens in the country, we expect many portfolios with be overweight these names. We think this is a better way to play the recovery, as lower breakevens allow operators to increase production even at today’s oil price.  Since we are unsure when oil prices will recover, we continue to try an play the move in a conservative manner.