ExxonMobil now has 6 billion BOE of resources in the Permian, with 3.4 billion BOEs in the Delaware
ExxonMobil Corporation (ticker: XOM) announced that the company will more than double its Permian Basin resources to 6 billion BOE through the acquisition of companies owned by the Bass family of Fort Worth, Texas.
The Permian assets purchased from the Bass family will join the rest of Exxon’s unconventional liquids portfolio managed by its subsidiary, XTO Energy, the company said in the press release.
In the company’s press release, XOM said that approximately 3.4 billion BOE of that resource is located in the Delaware Basin. The Delaware has become a red hot spot for oil and gas M&A activity in the last year.
The company will make an upfront payment of $5.6 billion in ExxonMobil shares, and a series of additional contingent cash payments totaling up to $1 billion, to be paid beginning in 2020 and ending no later than 2032 commensurate with the development of the resource. Using Monday’s closing price of $86.35 per share as a benchmark, the portion of the deal to be paid in equity will be made up of approximately 64.9 million shares of the company.
The Bass family has built upon the fortune of their oil tycoon uncle, Sid Richardson, over the last four decades, but it is difficult to say exactly how much money the family controls. Robert Bass, the wealthiest of the four Bass brothers started an investment company called Oak Hill in the early 1990s, which now has more than $35 billion in assets under management, according to Forbes.
“This acquisition strengthens ExxonMobil’s significant presence in the dominant U.S. growth area for onshore oil production,” said Woods. “This investment gives us an exceptional Delaware Basin position in a proven multi-stacked play that can generate attractive returns in a low-price environment,” said Exxon Chairman and CEO Darren Woods.
“The highly-contiguous position will provide significant cost advantages in developing 3.4 billion barrels of resource, of which 75 percent is liquids. By utilizing ExxonMobil’s technological strength coupled with its unconventional development capabilities we can drill the longest lateral wells in the Permian Basin, reducing development costs and increasing reserve capture.”
The purchased companies hold about 275,000 acres of leasehold, and production of more than 18 MBOEPD, about 70% of which is liquids, according to XOM. The majority of the leasehold (250,000 acres) is in the Permian, the bulk of which is contiguous, held-by-production units in the Delaware Basin, with more than 60 billion BOE estimate in place.
No stopping the Permian
Permian M&A action is already 18.2x larger than in the first month of last year. Exxon’s announcement today was the latest in a number of deals in the Permian Basin that have jumpstarted M&A in 2017. On Monday, Noble Energy (ticker: NBL) purchased Clayton Williams Energy for $3.2 billion, inclusive of debt, and last week, WPX Energy (ticker: WPX) and Parsley Energy (ticker: PE) made acquisitions in the Permian for a combined total of $1.4 billion. In just the first few weeks of 2017, the value of the M&A transactions in the Permian have already exceeded year-ago levels by far.
Looking at deals from December 31, 2015 to January 17, 2016, and a similar timeframe for 2017, deal value of M&A activity in the Permian grew 18.2x year-over-year, according to information from Bloomberg.
Stronger oil prices likely played an important role in increased M&A activity, and overall economic optimism in early 2017 seems to have replaced the malaise in North America in 2015 and early 2016 when the industry realized that $100 oil was no longer the norm. Amid an onslaught of bankruptcies, smart, lean shale producers began to understand that certain basins could make money, even with oil selling at half what a barrel would previously fetch.
Roller coaster ride for assets, operators
But on January 15, 2016, the price of WTI slipped all the way down into the $20s per barrel, leaving many sellers unwilling to part with their assets for fear that they would not realize a fair price on the acreage until prices recovered. Today, oil prices are above $52 per barrel, making many plays in the U.S., particularly the Delaware, profitable again.
As oil prices recovered over the course of last year, many players bought assets in the Permian. The breakeven cost for production in the Delaware Basin is as low as $28.62 per barrel according to EnerCom Analytics. According to market research firm PLS, the Permian was the most active area for M&A in 2016 with $27 billion of deals, roughly 84% of total oil and gas M&A.
The deals just in the first two weeks of 2017 already represent 41% of the total deal value of M&A activity in all of last year.