MIDLAND, Texas ̶ On a blustery fall day in Midland, Texas, and with WTI crude prices at $77.28, industry executives with a past, present or future stake in the booming Permian Basin packed the Horseshoe at Hart Energy’s 20th Executive Oil Conference. The audience hung on every word of a panel of experts forecasting crude prices and how the current commodity price band could constrict activity levels, acquisitions and divestitures (A&D) and exits.

Chris Carter, managing director of private-equity provider Natural Gas Partners, began his dissection of the supply/demand conundrum by saying that if just the increase in U.S. crude production in the past three years—3.4 million barrels per day (bbl/d)—were considered as the production of a separate country, it would represent the sixth-largest producer in the world.

Like natural gas production from the shales, burgeoning U.S. crude supply has smothered prices. “Over the past few years, oil production disruptions from Libya, Iran, Nigeria, Sudan and Syria have been able to offset U.S. production growth; but as production from Libya and Iran has come back online amid continuing U.S. production growth, global oversupply has resulted,” Carter said.

In the long term, Natural Gas Partners looks for WTI oil prices to stay in the range of $80 to $100/bbl. Above that price there will be demand destruction, he said. OPEC needs $85 to $100/bbl to meet its budgets and social costs. In the U.S., Carter expects $80 is needed to preserve rig count. Below that, he looks for a significant drop in active rigs and eventually, a demand response. He dusted off an old industry maxim: “The best cure for low prices is low prices.” And, the outcome on Nov. 27—the date of the next OPEC meeting—is the big question, he said.

What about the outlook for the Permian Basin—the hallowed home of pure-play IPOs and seemingly endless stacked-pay opportunities—in these price scenarios? Carter pointed to the stunning rise in horizontal rig count from 17 in November 2012 in the core northern Midland Basin to 123 today. “Single-well returns are driving it,” Carter said. At $80 for a typical Midland Basin horizontal, a drilling and completions cost of $7.2 million and an EUR of about 689 Mboe, those returns average 35%, he said.

In response to drilling success, acreage values escalated, from $5,833 per acre in the Midland Basin core in 2012, to $14,788 in 2013 and $27,638 in 2014. The rise has been fueled by horizontal success in additional benches, competition among public companies for acreage in the core, and successful exits by private-equity-backed companies.

The question is, will these high values for acreage in the core hold as crude oil prices slide? “Our analysis suggests even in an $80 world, acreage still will command a healthy premium,” Carter said. He sees the potential for core acreage to average $35,000 per acre, given stacked pay potential. He breaks it out this way: 10,000 acres equals 188 locations to drill at $7.2 million each; capital of $1,354 million to be deployed; EURs of 689 Mboe for total resource potential of 130 MMboe; a total PV-15 of $315 million; resulting in a PV-15 per acre of $35,472.

The managing director’s forecast for exits and IPOs in the coming year in the Permian was cautious. He said he knows of three companies planning IPOs. If they are successful, he looks for a continued strong mergers and acquisitions (M&A) market. Private-equity and private companies could benefit from a slowdown in access to public markets for IPO exits. They could once again compete more effectively in the A&D markets.

Natural Gas Partners has nine portfolio companies focused on the Permian. Carter noted that six of those nine CEOs were younger than 40 when the companies were started. They are among the next generation of leaders in the industry, he said.

In closing, he reiterated his belief that below $80/bbl, global supply and demand don’t balance, leading to support for prices. “The Permian Basin will be attractive for years to come,” he said.

Panelist Jordan Marye, partner with Denham Capital Partners, focused on how companies can position themselves to be successful in any price environment, eschewing price predictions. Denham is mainly focused on private equity investment in oil and gas, specifically upstream and midstream. It is currently investing for its third fund, a $3.6 billion effort. Of its 13 active investments, 10 are in upstream.

Just two, Tall City Exploration, currently in the sales process, and Outrigger Energy, a midstream endeavor, are focused on the Permian. Since 2012, Tall City assembled some 84,000 acres across Reagan, Howard, Borden and Crockett counties, Texas. The Reagan and Crockett assets have been sold, while the Howard County position is in the sale process. Drilling has begun on the Borden County acreage.

Eyeing the current price and activity environment for E&Ps, Marye said the fall in prices could shake out as more M&A action. “Reshuffling yields opportunity,” he said.

He referenced a study from ITG that indicates unconventional technology has whetted the industry’s thirst for capital: an estimated $2.9 trillion in drilling and completions capex is needed to drill more than 500,000 remaining U.S. locations. “The capital and operational intensity of the current environment has caused a major rationalization of ‘core’ vs. ‘noncore’ assets among producers, large and small.”

Responding to industry concern about commodity prices, Marye said Denham’s job isn’t to bet on commodity prices. Rather, he said, the firm makes money on investments having economic rates of production and cash flow. By investing in assets that are good quality, one can be insulated from volatility in oil prices, he said. Such good quality assets are “lower than the cost curve and advantaged on the cost curve,” he said.

Denham looks for opportunities that have low leverage; where, when times are good you can thrive, but when times are tougher you can pivot and cover yourself. It’s also important to have access to infrastructure, he emphasized. “You get paid at the wellhead, not at the index.

“This industry is good at making stuff,” he said. “Over the long term, to be successful you have to invest in asset metrics. Prices will take care of themselves.”

Andy Taurins, managing director with Lantana Energy Advisors, an A&D-focused firm now owned by SunTrust Robinson Humphreys, took a look at acreage values for the Permian Basin. He asked, “At $77 oil prices, does the Permian still sizzle?” He based his analysis on $75 flat prices, and said he was “surprised at the results.”

Several years ago, transactions in the Midland Basin were attracting values of $2,400 per acre. But as technology proved up more benches, beginning in 2013 and extending through 2014, the basin has enjoyed a “stunning rise in prices” to $24,000 per acre on average.

When prices climb to those levels, there is often cause for concern, he said, “but the Midland is different. Its stacked pays make a difference.”

His analysis looked at the dollar value of deals done before the price drop. A good number have been done in the $30,000 to $40,000 per acre range, but the average was $24,000. In the epicenter of the Midland Basin, however, in Midland County, prices have reached $40,000 to $45,000 per acre. And, even at $36,000 per acre, producers can make money, he said.

The multiple distinct horizontal targets are the key, he said. Figuring that many areas offer an average of four distinct targets or benches, and applying that $45,000 top price, the acreage price works out to $10,000. And for internal rates of return (IRRs), he figures that at $75 oil, legacy assets can average 35%. Tier 1 assets, with four benches, average 30% IRRs at $75, and Tier 3 assets, with one bench, get “dicey” with IRRs of about 19%.

Most hurt in the low price environment are the fringe areas, where the number of locations declines.

The speakers agreed that service price adjustments will also play a role in helping activity levels hold.