Low oil prices and an atmosphere of uncertainty have not deterred Tailwater Capital from investing in the oil and gas industry.
The company and its upstream investment platform, Tailwater E&P, have acquired a diversified non-operated leasehold position across the northern Delaware Basin in Lea and Eddy counties, New Mexico. The acquired asset covers about 35,000 gross acres and includes exposure to more than 900 gross wells. The acreage is over 97% held by production and features significant near-term development activity under premier operators, including Coterra, Mewbourne, Devon and Matador. The investment includes access to more than 250 near-term DUC, AFE and permitted locations, along with a deep inventory of more than 10 years of highly economic undeveloped drilling locations.
“We’re excited about what’s happening in New Mexico and the Permian Basin in general,” said Doug Prieto, partner at Tailwater Capital, adding the company is also excited about developments in other producing basins. “We’re seeing operators drilling better wells, delineating new zones and lowering costs.”
Prieto said the company has been watching the development of new zones, including the Woodford and Barnett, Avalon and Harkey Sand and Wolfcamp C and D benches. Technology is lowering drilling and completion costs, improving efficiency and lowering breakeven costs, making those new zones competitive, he said.
“The Permian Basin is evolving as the best play through technology and innovation,” he said.
He said the company believes there remains quite a bit of Tier 1 drilling inventory — enough for the next 10 to 20 years. He estimated it would take $1 trillion to develop that inventory over that time span.
He pointed out the company is also investing in midstream companies, citing its investment in Producers Midstream II, which serves Texas, New Mexico and Oklahoma.
“It’s an extension of our operator solutions philosophy. We want to help with midstream issues, at the drill bit. We’re not competing with operators,” he explained.
Because of the wave of consolidation, he said there’s a deeper inventory in the hands of fewer operators, allowing Tailwater to help with capital and technology, he said.
The company is also watching the growing emphasis on natural gas among Permian Basin producers and is preparing on both the upstream and midstream sides.
“We believe in energy addition instead of energy transition. There is durable demand from artificial intelligence data centers and liquefied natural gas demand will support natural gas prices. We still think crude will be required. From vehicles to airplanes, there’s so much of a barrel of oil that can’t be replaced,” he said.