Chinese-owned Surge Energy grows in the Permian, sets records

[Elderberry]

Houston Chronicle by  Jordan Blum Sep. 14, 2019

Surge Energy is giving new meaning to the term “unconventional drilling.”

The Houston oil and gas company drilled frantically in early 2016 when crude prices were near their lowest, running as many as eight rigs at a time, when most companies were stacking them during the last oil bust. It has drilled the longest horizontal well in the Permian Basin in West Texas. And it has unique ownership.

Surge Energy is the first U.S. shale producer wholly-owned by Chinese investors. Since its founding in 2015, the startup has largely operated under the radar, buying up tens of thousands of acres on the northeast outskirts of the Permian and finding oil in an area that many other companies believed had limited potential.

In just four years, Surge has become one the Permian’s top 25 drillers, its production soaring from 6,500 barrels of oil equivalent a day in mid-2016 up to more than 50,000 barrels per day this summer. The company, run by a team of Chinese and American executives, employs about 150, including 75 in Houston.

More: https://www.houstonchronicle.com/business/article/Chinese-owned-Surge-Energy-grows-in-the-Permian-14438062.php

[IsailedawayfromFR]

Article indicates a number of items that are either high risk or indicative of a poor understanding of economics or how the industry actually works.

Purchasing on the fringe of a play is risky.  And paying +$13k per acre is high.  And no one would ever do that if the leases were expiring in a year, like they did.

All adds up to a weak business model, one which cares not for costs.

One who 'grows' by forgetting economics is not the type of growth that is sustainable in the oil patch.  There are however, plenty of oil people who will gladly take the money of idiots.

Dealing with people who do not know the industry reminds me of working for a major oil company during the late 70s when US Steel wished to secure reserves for its business by getting into the business by participating in equity positions as a non-operator.  The major was approached, so we dusted off the riskiest exploration projects we had decided to never drill and let US Steel in on a highly-leveraged funding position where they absorbed the bulk of the risk.

The entire portfolio proved nothing but dry holes, so US Steel after spending many millions still had nothing.

So after this fiasco, the company decided to do it the right way by purchasing Marathon who operated the Yates field, the largest proved reserves of any field at the time in the lower 48.