In the West Texas counties of Martin, Midland and Howard—aka, the land that the downcycle forgot—midstream operators are furiously planting steel in the ground and building storage tanks to the sky.

Close your eyes and it’s almost as though 2015 never happened and we’re still clapping along to the catchy beat of “Happy” by Pharrell Williams.

“We are just as busy today as we have ever been,” Matt Vining, chief commercial officer and co-founder of Dallas-based Navigator Energy Services LLC, told Midstream Business. “By the end of the third quarter, we will have installed over 450 miles of pipe and are now looking at building in excess of 600,000 barrels (bbl) of crude storage. We’re in full operation and moving a lot of crude.”

Vining’s company, which has grown from a group of four industry veterans with big dreams in 2012 to a staff of 60 to execute those dreams in 2016, is not alone. Brett Wiggs, CEO of Midland, Texas-based Oryx Midstream Services LLC, has his team working at full throttle as well in the Permian.

“We have about 175 miles of pipe in the ground,” Wiggs told Midstream Business. “By the end of this year, we’re expecting to have between 300 and 350 miles of pipe in the ground. We are a purely focused Permian Basin team.”

Location, as expected

While the experience of these two companies might stand out like an anomaly—finding that producing port in a storm of cutbacks, delays and uncertainty—it actually reinforces a common prediction as this downcycle began to shift into gear. To a large extent, a company’s success depends on where it operates, even for those entities concentrated in a single basin, Jim Hanson, Duff & Phelps managing director, told Midstream Business in early 2015.

“The capex budgets don’t immediately get chopped all at once,” he said. “People are continually re-evaluating and slowly taking off projects. The science projects come off first, then you get to some of the less core areas.”

“What’s ironic is that, as you start to peel some of these off, you actually get increased efficiencies,” Hanson said at the time. “I’ve heard people say, ‘why can’t you just have these efficiencies in a good market and really increase your production?’ In a good market, the E&P companies are more apt to look on the fringes and look for new technologies and things like that. It’s not quite as dramatic as people think. You could expect to see some increase in production.”

Core of the core

The numbers bear that out. Look at the map that accompanies this story and stick your finger smack dab in the middle of the play over Midland and Odessa, Texas. Navigator operates in four counties northeast of your finger (Midland, Martin, Glasscock and Howard) and Oryx is in six counties to the southwest (Midland, Reeves, Ward, Crane, Upton and Pecos).

Monthly oil production in Navigator’s three counties, from January 2015 to January 2016 as measured by the Texas Railroad Commission, was up around 1.16 MMbbl, or 15.4%. In Oryx’s area, monthly production rose by more than 550,000 bbl. to around 13.25 MMbbl.

Drilling efficiencies are a big part of this story, but not the whole story. Producers in the Eagle Ford Shale in South Texas have access to the same technology and techniques, yet have suffered a January-to-January drop in production of 19.7%, the U.S. Energy Information Administration (EIA) has reported. There’s a reason why producers have retreated in the Eagle Ford and pumped up overall production in the Permian, and the reason is the rock.

“It’s the underlying resource,” said Wiggs, explaining what gives the basin its competitive edge. “The Permian, compared to other resource plays, has multiple benches and multiple opportunities with significant recoverable hydrocarbons in place. Depending on where you look at the core opportunities, you’ll see anywhere from five to seven to eight potential horizons for development vs. many of the other shale plays in the U.S. The Permian provides multiple opportunities in the same acreage position to create some of the most compelling economics in the U.S.”

Jessica Pair, upstream manager for Stratas Advisors, sees it, too.

“These counties—Howard, Mitchell, Glasscock, Martin—those areas are just great areas geologically,” she told Midstream Business. “We see some similarities in counties in the Delaware Basin as well; mainly Midland, Reeves and Loving, Ward and Culberson are also hot spots. I expect us to see a lot more activity move into these areas as people try to home in on the core of the core, if you will.”

But don’t exclude technology as a driver.

“There’s been a lot of transformative events on the producers’ side in the field, and the advent of pad drilling in the Spraberry formation has really been a step change in the production profile that we’re seeing across our project’s footprint,” Vining said. “While you’ve seen a marked decline in overall rig count across the basin—and really everywhere, that’s no surprise—we’ve seen an increase in production across our four-county footprint in the last six months.”

Again, the numbers tell the story: overall crude production in the major U.S. shale plays is down, January to January, except for the Permian.

New drilling

Keeping up keeps Oryx busy.

“We’ve put in 150 miles of pipe in the last five months,” Wiggs said. “We expect that clip to continue. Currently, we’re gathering for two producers actively. We just started up in the last 30 days and we’re moving about 15,000 barrels a day from the current producers connected to the system.”

The gathering systems are part of the Oryx Trans Permian Pipeline System (OTP), which currently connects to Magellan Midstream Partners’ Longhorn Pipeline in Crane County. The company is working on another gathering system of 35 miles of pipe for a third producer. Three more gathering systems are on the docket to be completed in the next six to seven months, bringing the total of gathering pipe to over 200 miles.

“The other major project that we’ve got is continuing our 16-inch line from our Crane station up to Midland to complete the second delivery connect to Enterprise Product Partners’ oil terminal on the east side of Midland,” he said.

In a time of drastically declining rig counts, Navigator is enjoying the results of fresh E&P activity.

“We are hooking up nearly 60 new tank batteries in the next six months,” Vining said. “These are new drills. We are very excited and enthusiastic because I think the resiliency of at least our area of the Midland Basin has proven to be one of the most economic plays in the Lower 48.”

Change is a constant

Vining places his company’s location-based success into the better-to-be-lucky-than-good column, though both the Navigator leadership team and Wiggs’ Oryx team boast deep experience in the basin. All things being equal, it’s difficult to identify a sweet spot; it’s much easier when surrounding areas have soured.

“Industry tries to define what is the core, but that core morphs over time,” Jeff Sieler, Citigroup Inc.’s managing director, told Midstream Business following a presentation on Oklahoma plays at NAPE earlier this year. “The headline formations, the current ones that are getting publicity, change over time.”

Vining sees it in the Permian, too.

“There’s not complete alignment with how the basin is doing, with how Navigator is doing,” he said. “I think we have seen a disproportionate share of the volumes in our area of the basin. If you looked at the Permian Basin over the last three years, you saw there was somewhat uniformity around the growth. There were better areas than others, but it was more difficult to point to a single county and say, wow, that county is growing at twice or three times the rate of another.”

It’s only been in the last year or so that core areas have separated themselves from second- and third-tier areas by continuing to grow, he said.

Texas Railroad Commission data show production declines for 29 of the Permian’s 46 oil producing counties, with significant losses experienced by Irion, Crane and Reagan counties.

Then there is Texas’ Loving County, in the Delaware Basin, which increased its January-to-January production by 861,000 bbl, or a whopping 76.4%—spectacular at any point of any cycle.

New Mexico action

“This basin historically been predominantly vertically drilled,” Pair said. “The horizontal targets are just increasing dramatically right now. That’s why we’re seeing a lot of the increase in production so quickly and how we can attest to a lot of the production growth here. In southern New Mexico, in Eddy County and Lea County, more of the southern regions of these two, we’re also seeing similar growth patterns. I don’t believe it’s as big as the Loving [County] growth pattern, but it’s still something to pay attention to.”

From Wiggs’ perspective, these areas will remain atop the pile when prices recover.

“The underlying resource of the rock is what’s key for any midstream project,” he said. “For the top areas in the U.S., the economics are still compelling, and we think with some kind of price recovery that those economics are going to lead the industry.”

The rigs in areas like the Permian’s core will be where rigs are the last to be stacked and first to be picked up, he said. He expects as many as eight rigs to be working on the Oryx-dedicated acreage through the second quarter.

“In our project area, we still see an increasing production profile for the producers that we’ve already signed up,” he said.

Still on top

The Permian’s status as the premier North American oil play will only strengthen in the next few years, Stratas forecasts, but its lead will lengthen in output of natural gas and NGL as well. That’s a result of increased attention to the Delaware Basin.

“[Producers are] actually increasing frac stages, in addition to extending lateral lengths,” Stratas analyst Cory Regal told Midstream Business. “They have a lot of different completion efficiencies that they’re working on, particularly in the Delaware and southeast New Mexico.

“That’s where you’re seeing a lot more drilling now, in the Delaware Basin,” he added. “As opposed to the Midland, where vertical drilling has been the standard for some time.”

Vining and his team see the basin’s growth as relatively flat for the next three years.

“Certain counties in the Permian Basin are going to grow and a lot of counties in the Permian Basin are going to decline,” he said. “We do expect that in three to four years, as there’s stabilization in the long-term price of crude, the thing that becomes abundantly clear is that producers can make good returns at crude prices between $50 and $65. We expect continued levels of growth at the basin level starting in late 2019 forward.”

Navigator’s projection is that crude prices will be range-bound between $40 and $60, with a lower bias for the next two to three years. Pricing on the higher end, toward $60, won’t happen on a consistent basis until 2019.

The Stratas perspective is a little more optimistic.

‘Cue to drill’

“We’ve actually seen the price point of what we’re calling the ‘cue to drill’ again decrease,” Pair said. “WTI [West Texas Intermediate] has to hit a certain point for us to see a rebound in activity and production levels. A few months ago, we had that price point at $50 to $60 per barrel, so we needed WTI to be close to that point. Under current techniques, seeing efficiencies and new production results come in, we’ve actually dropped that price point to below $40 per barrel for some regions.”

So, in the price range of $35 per bbl to $40 per bbl, some operators will be able to manage quite well. In fact, in certain parts of the Permian, that price point could drop to as low as $24 per bbl, Regal said.

That’s an average as low as $24 per bbl in parts of the Permian. Don’t try this in the Bakken.

Wiggs expressed confidence that E&Ps will move rapidly when prices recover.

“That set of companies responds very quickly to pricing, and I think you’re seeing a natural balancing of the marketplace,” he said. “Within the Permian, you see flat to increasing production, especially if you have a little bit of recovery in prices. With some recovery in prices, we think that that production increase could accelerate pretty rapidly.”

If it’s going to happen, this is the basin where it will.

“The Permian is so different in and of itself because there are multiple horizons that you can target,” Pair said. “Operators can basically choose the type of hydrocarbon that’s giving them the best returns at any given time. I definitely see that as being the savior of the Permian right now.”