Exxon's Planned Expansion In Texas Points To Pickup In Energy Deals

Exxon's Planned Expansion In Texas Points To Pickup In Energy Deals
ExxonMobil says it signed two agreements to drill on 48,000 acres in Texas' Permian Basin, in a transaction that suggests the frozen energy deals market is thawing.

HOUSTON, Aug 6 (Reuters) - Exxon Mobil Corp, the world's largest publicly traded oil company, on Thursday said it signed two agreements to drill on 48,000 acres in Texas' Permian Basin, in a transaction that suggests the frozen energy deals market is thawing.

A 60-percent slump in crude oil prices from more than $100 a barrel last summer prompted talk of a wave of deal making in the sector, but up until now, buyers and sellers haven't been able to agree on valuations.

In recent weeks, however, crude has dipped again to $45 a barrel, a level merger and acquisition lawyers say has spurred seller capitulation.

Exxon is famously conservative and had been mostly sitting on the sidelines, so its tiny purchases may indicate dealmakers believe the crude rout has bottomed.

The two agreements, while quite small, include a purchase and the acquisition of leasing rights from another operator in acreage that adjoins Exxon's property in two counties. The acreage will be operated by Exxon's shale drilling unit, XTO Energy Inc.

Exxon has long held that it will only make acquisitions that complement existing holdings where the Irving, Texas oil giant believes it can drive out costs.

On the company's second quarter earnings call last week, Exxon executive Jeff Woodbury said the company has been able to enjoy a "value uplift" in previous acquisitions in the Permian around its existing operations.

The Permian Basin is one area where Exxon has focused its so-called unconventional exploration where horizontal drilling and hydraulic fracturing are used to pry oil and gas from rocks. Shale wells can be drilled in days and typically provide better returns.

For example, Exxon was able to boost its output from shale by 20 percent from a year ago in the second quarter, the company said last week.

XTO is now operating 11 horizontal rigs and 4 vertical rigs across its 1.5 million-acre Permian position.

Exxon did not disclose its purchase price for the latest two Permian agreements.

The company's last big purchase was in 2010, when it acquired XTO for $30 billion in the months following a collapse in natural gas prices.

(Reporting by Anna Driver; Editing by Terry Wade and Bernadette Baum)

Copyright 2017 Thomson Reuters. Click for Restrictions.


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Philippe | Aug. 9, 2015
The postponement of mega projects by the majors will over times impact the replacement of world reserve. 5% of the world reserve is depleted every year. 2 years postponement equates 10% and 4 years 20% loss reserves. These projects postponements are based on the amortization of these projects. From inception through first oil 5 years has passed by. Lower crude oil price means longer amortization. Can a major wait 30 years or more for the amortization of an “elephant”? My guess is not, the profitable production max around 20 to 25 years for billions projects. It has to do with the equipment life and the field pressure drop. Than the local political atmosphere can become an added negative risk. My experience, having worked on Kezamba an Exxon project, Exxon was willing to spend 10% to 15% more up front not to have a shut down for 5 years. Exxon was getting paid in crude oil for the first 5 years, shut down equate to big lose. After 5 years the contract terms changes. Shale fracking production does not need huge (billions) up front money. The invested capital is spent over the life of the project to keep the IP-EUR balanced. The capital invested can be closely managed over time. Obviously there are several shale producers that will not survive; M&A will choose the survivors. Exxon may be active in this M&A market. As soon as the first well produces, an MLP IPO can generate the needed capital. MLP is not an Exxon favorite financing tool. Will the majors JVs with OPEC and government E&P companies? The risks appear to be against the majors such as Exxon, they put up the upfront money, several billions. As JVs they are minority owner up to 49%. OPEC mainly the Saudis and the Kuwaitis have the capital to finance their future production. But other OPEC members do not have this luxury, Nigeria, Venezuela, Indonesia even none OPEC Brazil. They have to budget social programs to keep their population under control. Again higher prices will satisfy the shale fracking projects while time will take “Elephant” project to see first oil. The majors will concentrate more and more on refining. Looking closely at Exxon, the reserve replacement is less crude oil and more natural gas. I believe we are at the beginning of a Majors oil company’s realignment. Or they get back to friendlier environment and get into shale projects, what Exxon is doing, or they will become refiners only. Their EP prospect is becoming limited. My guess, low crude oil prices cannot stay in the high $30s low $40s for very long, none the less it will take many years to get new project on line. Naturally the big OPEC members do not worry about that.

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