How does this company make money?
The company sells crude oil to pipeline purchasers in the Midland Basin at posted prices, adjusted up or down based on oil quality and how much it costs to ship. It sells natural gas through regional gathering systems at prices linked to the Waha Hub, minus fees for processing and transportation. It also sells natural gas liquids at prices tied to Mont Belvieu, after deducting the cost of separating and moving those liquids.
What makes this company hard to replace?
Crude oil buyers have signed purchase agreements tied to specific pipeline shippers in the Midland Basin, with volume commitments and quality specifications matched to Delaware Basin production. Pressure pumping vendors who work on these wells have learned the company's specific completion designs for the Wolfcamp and Bone Spring formations, making it difficult to swap in unfamiliar crews quickly. Produced water disposal wells serving company operations are covered by long-term capacity agreements, locking both sides into the arrangement.
What limits this company?
Once the oil and gas come out of the ground, they have to travel through pipelines to reach refineries. The pipelines leaving Reeves and Lea Counties are run by Enterprise Products Partners and Plains All American. When more oil is produced in the region than those pipes can carry, the local price falls below the standard West Texas price, and the company earns less on every barrel it produces — no matter how efficiently it drills.
What does this company depend on?
The company cannot operate without drilling permits from the Texas Railroad Commission and the New Mexico Oil Conservation Division, which must both approve work on their respective sides of the state line. It also needs pressure pumping companies to carry out hydraulic fracturing in the Wolfcamp and Bone Spring formations, specialized horizontal drilling rigs capable of long underground reaches, pipeline access through Enterprise Products Partners and Plains All American to move oil to market, and a reliable supply of fresh water plus the permitted capacity to dispose of produced water in Reeves and Lea Counties.
Who depends on this company?
Gulf Coast refineries that process light sweet crude from West Texas would need to find replacement supplies if this company stopped producing, because Delaware Basin crude has specific qualities those refineries are set up to handle. Natural gas processing plants in the Permian Basin would see lower volumes moving through their facilities, reducing how efficiently those plants run. Local governments in Reeves County and Lea County would lose property tax income and jobs that depend on active drilling.
How does this company scale?
Drilling more wells inside the existing land block is relatively cheap to repeat — the completion designs are already proven and the shared infrastructure is already in place across the Delaware Basin footprint. What does not scale easily is the supply of high-quality drilling locations. The best spots within the Wolfcamp and Bone Spring acreage are finite, and once those sweet spots are drilled, accessing more premium inventory requires buying additional land.
What external forces can significantly affect this company?
Federal rules on methane emissions require the company to install leak detection and vapor recovery systems on its New Mexico operations, adding cost and compliance work. Chinese policies on how much crude oil the country imports affect global oil prices, which in turn set the price the company receives for every barrel it sells. Drought conditions in West Texas put pressure on freshwater supplies in Reeves and Lea Counties, which matters because hydraulic fracturing consumes large amounts of water on every well.
Where is this company structurally vulnerable?
If the New Mexico Oil Conservation Division tightened its rules — on how much produced water can be disposed of underground, how far wells must sit from homes, or how quickly methane leaks must be fixed — the New Mexico half of the acreage would have to operate under different and more expensive rules than the Texas half. That would split what is today a single shared system into two separate operations, erasing the cost advantage that the connected land position was built to deliver.
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