Exxon Mobil Expands Permian Basin Footprint -- 2nd Update
January 17 2017 - 5:52PM
Dow Jones News
By Bradley Olson
Exxon Mobil Corp. is the latest company to expand in the red-hot
Permian Basin in Texas and New Mexico, 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 more than $10
billion in just the past week. On Monday Noble Energy Inc. said it
would pay $2.7 billion to buy West Texas producer Clayton Williams
Energy Inc.
Exxon paid about $23,500 an acre including potential future
payments, according to Jefferies & Co., about 25% less than the
average price paid in the past six months. Exxon's ability to use
shares in treasury to buy assets may be attractive to sellers based
on potential tax advantages, according to Jefferies analysts.
The string of deals, which analysts expect will continue, shows
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 began 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
was roughly flat on Tuesday, closing at $52.48.
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, cover
about 275,000 acres and may hold as much as 3.4 billion barrels of
oil and gas, 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 and 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 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 region say
land there has layers of oil-bearing rock stacked on top of each
other and hold substantial 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 area. 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.
--Austen Hufford contributed to this article.
Write to Bradley Olson at Bradley.Olson@wsj.com
(END) Dow Jones Newswires
January 17, 2017 17:37 ET (22:37 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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