The Delaware Basin in arid western Texas and southern New Mexico used to be a good deal more inviting than it is today.
In fact, around 300 million years ago, when the region was south of the Equator, the area was a lush, tropical reef teeming with Permian life, covered by the warm Delaware Sea, which was part of the ancient Panthalassa Ocean.
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Nowadays, the fossilized remains of that reef are exposed in the hot desert air, and the once-aquatic landscape has given way to scrub and the national parklands of Carlsbad Caverns and the Guadalupe Mountains.
The area is also known for its vast, thick deposits of limestone…
… and shale. Virtually endless expanses of oil-rich shale – wellspring of the second American energy revolution.
And one company is in the perfect position to reap the rewards of this ancient treasure…
This Is One of the Most Promising Plays of the Decade
If you’re not familiar with the Delaware, you’ll want to be. In fact, it’s a name every investor should know.
It’s the western section of the ever-obliging Permian Basin and consists of about 6.4 million acres. Estimates put the Delaware Basin’s oil production at 2.3 million barrels of oil per day by 2022.
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It’s what oilmen refer to as a “multi-stacked play,” meaning just about any well can potentially draw production.
In other words, there is great potential for massive profits for drillers in the area.
That’s something Carrizo Oil & Gas Inc. (Nasdaq: CRZO) can attest to.
Carrizo has a primary focus in two of the highest-producing oil fields in the country – Eagle Ford Shale in South Texas and the Delaware Basin.
And the company’s Delaware Basin acreage just got 10,600 acres bigger following its most recent purchase.
Carrizo just bought 10,600 acres of land from Devon Energy Corp. (NYSE: DVN) for $215 million.
The purchase brings Carrizo’s total acreage in the region to 46,000 net acres.
That’s more than 100 potential drilling locations across some of the most oil-saturated land in the Permian. This acreage will have a net production of about 2,500 barrels of oil equivalent per day.
The Basin is a location ripe for horizontal drilling, which can access areas that can’t be reached vertically.
In other words, horizontal drilling makes for some extremely productive oil drilling, and Carrizo is an industry leader.
In fact, it has completed over 900 horizontal wells across multiple resource plays.
CEO S.P. “Chip” Johnson commented, “We expect to seamlessly integrate these assets into our existing development plan for the area, which currently assumes a ramp-up in activity in the second half of 2018 as Permian pipeline takeaway is forecast to increase.”
Carrizo has been a consistent performer in the Energy Advantage model portfolio over the years, as we’ve entered and exited the position as circumstances and discipline dictate. Most recently, we’ve enjoyed close to 45% in gains on this driller; 21% of that came in less than one trading day four months ago.
The bottom line: In light of the riches Carrizo is positioned to pull out of the ground in the Delaware Basin, I expect that double-digit performance is just the beginning.
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