by David Wethe

Horizontal drilling in the Permian Basin is creating a new kind of swap meet.

Working with fresh technology that lets producers drill longer wells than ever before, companies such as Pioneer Natural Resources Co.Parsley Energy Inc. and Double Eagle Energy Permian LLC are increasingly haggling with other producers for slivers of land that allow them to extend the reach of their drilling with hardly any acquisition costs.

Prices for Permian drilling rights can run as high as $60,000 an acre. Trading land allows companies to drill the longer wells using ground a second company probably won’t develop, a win-win situation, said Bryan Sheffield, Parsley’s chief executive officer. But developers should take advantage now, because the practice likely has a low life expectancy.

"The trade rush is happening now," said John Sellers, co-chief executive officer at Fort Worth-based Double Eagle, which built much of its current position in the Permian from dozens of trades. "The golden era of trades is probably going to happen over the next 18 to 24 months. Then people are going to really have their positions buttoned up more."

Double Eagle, which is in the process of selling about 71,000 acres in the Permian to Parsley for $2.8 billion, has found that trading is the best way to catch the attention of larger players whose mineral rights he covets.

Land as Currency

"Land is really a currency out here," Sellers said. "Without it, it’s really difficult to do trades. Opening up your wallet doesn’t really get it done. You have to have acreage they need as much as you need acreage from them."

Like the general manager of a pro sports team trading players, Sheffield said explorers keep tabs on competitors’ assets. In a field that’s been drilled for decades, there are virtually no more secrets in the Permian. Therefore, it’s in everyone’s interest to trade.

"The play is already proven," Sheffield said in an interview Tuesday at the Scotia Howard Weil Energy Conference in New Orleans. "If you slow it down and restrict a trade, you’re destroying value on your acreage, and the other guy is destroying value on their acreage, because their acreage is going to get trapped in between two long laterals."

Within the past decade, the shale boom was born when explorers for the first time combined two older techniques: drilling wells sideways under a mile or more of oil-bearing rock and hydraulic fracturing, which blasts water, sand and chemicals underground to release trapped hydrocarbons. Before that, the most common way to get oil and natural gas was to simply drill vertical wells.

Doubling Length

Now, during the worst crude-market crash in a generation, explorers are looking to get more oil for less money by drilling even longer wells under ground.

Doubling the lateral length of a well from the previous norm of about 5,000 feet, combined with other techniques, can make a well about four and a half times more valuable, said Herbert Vogel, SM Energy Co.’s executive vice president for operations, during a call last year after his company bought 35,700 acres in the Permian from QStar LLC.

Pioneer has added nearly 3 million lateral feet in the Permian by trading acreage with "all of our friends," Tim Dove, the company’s chief executive officer, told Bloomberg TV in a December interview. At any given time, the company is working on 10 to 15 trade deals.

"Now the puzzle pieces are moving," Parsley’s Sheffield said. "We just need to help each other."