Exxon Mobil Expands Permian Basin Footprint -- Update
January 17 2017 - 11:40AM
Dow Jones News
By Bradley Olson and Austen Hufford
Exxon Mobil Corp. is the latest company to expand in Texas'
red-hot Permian basin, announcing a deal Tuesday to buy companies
owned by the Bass family for $5.6 billion in stock and up to $1
billion in additional payments.
Once a dominant player in the region, Exxon is joining other oil
firms in a race to build up drilling portfolios in West Texas and
New Mexico. Even as crude prices hover slightly above $50 a barrel,
about half the level of three years ago, the value of land in the
Permian basin has skyrocketed to records amid a flurry of land
buying as companies gear up for a rebound.
With the purchase, newly installed Exxon Chairman and Chief
Executive Darren Woods will nearly double the oil and gas the
company holds in the area to the equivalent of 6 billion barrels,
the company said. While Exxon had among the largest positions in
the Permian basin before the deal, it was far smaller than that of
peers including Chevron Corp. and Occidental Petroleum Corp.
The Exxon deal brings acquisitions in the area to nearly $10
billion in just the past two days. On Monday Noble Energy Inc. said
it would pay $2.7 billion to buy West Texas producer Clayton
Williams Energy Inc. And on Tuesday, WPX Energy Inc. announced a
$775 million deal to boost its operations. The companies paid an
average of about $30,000 an acre or less, values that are lower
than records but still high compared with historical averages.
The deals, which analysts expect will continue, show the extent
to which U.S. companies are betting on Texas as they seek to return
to growth after more than two years of shrinking amid falling
prices.
Crude has begun to stabilize above $50 a barrel after the
Organization of the Petroleum Exporting Countries elected to cut
output late last year. Many U.S. drillers have begun to put rigs
back to work in recent months, particularly in West Texas. U.S. oil
rose about 1.2% to $52.97 Tuesday morning.
Exxon is buying companies owned by the Bass family, which is
closely associated with Fort Worth, Texas and whose fortune was
built by legendary wildcatter Sid Richardson, including mammoth
discoveries in West Texas that date to the 1930s and 1940s. In the
past 15 years, the family has sold off much of what remained of the
empire Mr. Richardson amassed.
The operations, which include the operating entity Bopco, may
hold as much as 3.4 billion barrels and about 275,000 acres,
according to Exxon, which highlighted a "highly prolific,
oil-prone" section in New Mexico. The company plans to use the
position to drill longer horizontal wells, a technique many have
adopted in the crash that reduces costs by extending the reach of
drilling operations.
"We can drill the longest wells in the Permian basin, reducing
development costs and increasing reserve capture," Mr. Woods said.
He took over the helm at Exxon on Jan. 1 after his predecessor Rex
Tillerson was nominated to become President-elect Donald Trump's
secretary of state.
Companies have been paying never-before-seen levels for
drillable acres in the Permian Basin. Players in the space say land
there has layers of oil-bearing rock which are stacked on top of
each other and hold substantial oil reserves that can be tapped in
tandem, making each acre more valuable than in a typical oil
field.
Some in the industry have voiced concerns that the high prices
indicate a bubble is building up in the region. More than a dozen
people who responded to survey questions posed recently by the
Federal Reserve Bank of Dallas said they believed the acreage was
overvalued.
"The Permian transactions are approaching price multiples
associated with a bubble or a Ponzi scheme," one respondent
wrote.
Write to Bradley Olson at Bradley.Olson@wsj.com and Austen
Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
January 17, 2017 11:25 ET (16:25 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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