Permian Basin sees more oil investments
U.S. Energy Development Corporation is acquiring assets in Eddy County
Investments in Permian Basin oil and gas operations continued to grow as a national energy company announced it acquired assets in the Delaware Basin near the Texas-New Mexico state line.
U.S. Energy Development Corporation said it purchased interests in the Shetland development project in Eddy County, New Mexico, and the WarWink project in Winkler County, Texas.
Shetland included 14 producing oil wells and six proposed wells expected to go into production by the middle of 2021.
The WarWink purchase had two oil wells expected to also produce in mid-2021.
These projects followed U.S. Energy’s spending of more than $100 million in new projects in the past year, per a news release, and the company intended to continue seeking acquisitions in the Permian Basin through 2021.
Chief Executive Officer Jordan Jayson said the recent purchases were essential to growing the company’s operations in the Permian.
“The Shetland and WarWink projects are instrumental in U.S. Energy’s continued growth and expansion in the Permian Basin,” he said. “These projects offer favorable valuations, desirable locations and strong projected returns. They rank amongst the most attractive projects we have seen in our 40-year history.”
The projects were attractive, said Executive Vice President Matthew Iak as they are located in “opportunity zones” which offer investors the ability to defer short or long-term capital gains and receive 10 percent of that referral tax free.
Other tax-free gains can be had on investments held for longer than 10 years.
“Some of the best areas for oil and gas production are located in opportunity zone census tracts,” Iak said.
As the Internal Revenue Service recently extended the deadline for such investments and participation in an opportunity zone, allowing investors to defer capital gains tax dating as far back as Oct. 5, 2019 and applying to investments as late as March 5, 2021.
“Oil and gas direct investments have long been recognized for substantial tax benefits, but the opportunity zone tax provisions have raised the bar in terms of what investors can expect from their energy investments,” Iak said.
“The combination of opportunity zones and oil and gas investments couldn’t have happened at a better time. The only thing better for investors than cash flow, is cash flow that is potentially tax free.”
U.S. Energy’s investments in the Permian came at a time of recovery for the oil and gas industry, as prices rebound from the COVID-19 pandemic and subsequent historic drop in fuel demand.