CWEI Clayton Williams Energy, Inc.

By Christopher M. Matthews and Lynn Cook 

Noble Energy Inc. will pay $2.7 billion to buy Clayton Williams Energy Inc. in a deal that will give it a combined 120,000 acres of oil-rich property in West Texas.

The combination will create the energy industry's second-largest Southern Delaware shale acreage position in the Permian Basin. Noble is buying more than 2,400 new drilling locations, giving it a total of 4,200 with over 2 billion barrels of oil equivalent in reserves, the company said Monday.

"This makes us a leading player in the core of the core of the Delaware basin," David L. Stover, Noble's chief executive, said in an interview.

The agreement also calls for Noble to take over a significant number of pipelines in Texas that can carry fuel from oil fields near the New Mexico border to markets where refineries and oil storage tanks are located.

As drilling in the Permian Basin heats up this year, pipeline space is expected to become more valuable, experts say. The Permian is a giant oil-rich swath of West Texas and New Mexico that spans more than 75,000 square miles, making it roughly the size of the tri-state area of New York, New Jersey and Connecticut combined.

Within the Permian Basin, there are many layers of shale rock, and some have proved to contain vast deposits of crude oil. The Delaware formation within the Permian is one of those areas.

Clayton Williams Energy is a well-known Texas oil producer and an early user of horizontal drilling, which would later enable hydraulic fracturing, or fracking. The company bears its founder's name, a self-made businessman who unsuccessfully ran for governor of Texas in 1990 against Ann Richards and lost after inappropriate sexual remarks.

Over the last year, Clayton Williams Energy has been selling off non-Permian assets, focusing itself entirely on the most active U.S. drilling area, to the approval of investors. The stock has soared more than 530% in the past year to a recent $103.98 a share. In October, the company sold of all of its East Texas assets for about $400 million and hired Noble executive Patrick Cooke as it chief operating officer. At Noble, Mr. Cook oversaw the company's assets in the Delaware basin.

Noble's stock is up more than 35% over the past 12 months and closed Friday at $37.39 a share.

Terms of the deal call for Noble to acquire all the outstanding common stock of Clayton Williams Energy using Noble stock and cash.

Mr. Stover, said the company would add rigs to drill more in the area this year, starting with four rigs and boosting that to six by the fourth quarter. He said the acreage was particularly attractive not only because of the high quality of the rock but because it is contiguous to Noble's existing fields, making production more economic because the company can drill long, lateral wells.

Company projections show some wells would be profitable as low as $40 a barrel, Mr. Stover said, adding that the assets' would pay for themselves with cash flow.

Last week, Noble closed a $300 million deal that added 7,200 acres to the company's Southern Delaware Basin position in Reeves County, Texas, which are adjacent to other oil leases it has in the area.

Other energy deals have been heating up in West Texas, too, as the price of oil hangs over $50 a barrel.

Last week, Anadarko Petroleum Corp. completed a deal to sell oil and gas properties to Sanchez Energy Corp. and Blackstone Group LP for $2.3 billion. In September EOG Resources Inc. agreed to acquire Yates Petroleum Corp. for $2.3 billion.

Mr. Stover said Noble would continue to exercise discipline in capital expenditure following a downturn that forced drillers to live within their means.

"Hopefully the industry has learned over the last 10 years," he said. "You see a lot more discussion in the industry about managing cash flow."

Write to Christopher M. Matthews at christopher.matthews@wsj.com and Lynn Cook at lynn.cook@wsj.com

(END) Dow Jones Newswires

January 16, 2017 18:05 ET (23:05 GMT)

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