A flurry of multibillion-dollar deals in America’s Permian Basin, including a $6.6 billion acquisition by Exxon Mobil, could boost recovery in the US oil industry.
Amidst a production slump in the US which has lingered for two years, oil industry deals are getting larger. Most recently, Exxon Mobil announced plans to acquire 275,000 acres in New Mexico from private owners in Texas for around $6.6 billion. The same week, oil producer Noble Energy agreed to buy smaller rival Clayton Williams Energy for $2.7 billion, giving it 120,000 acres in Texas.
Both tracts of real estate are located in the Permian Basin, America’s top oil field. Since June 2016, there have been more than $25 billion in M&A deals in the vast area stretching across Texas and New Mexico. Other oil companies, including Anadarko Petroleum, SM Energy and EOG Resources, are selling assets elsewhere in the US in order to acquire a slice of its rich oil fields. Chevron, the second largest US oil company after Exxon Mobil, is pouring money into drilling there.
“The Permian Basin has now become the crown jewel of the world’s oil and gas industry”, said Scott Sheffield, Executive Chairman of Pioneer Natural Resources, a Texas-based oil and gas company.
In production for nearly a century, the Permian Basin was nearly depleted when, about a decade ago, fracking revealed multiple layers of shale. Because the oil-rich zones are stacked one atop the other, companies can drill through multiple reservoirs on the same plot of land. This feature, and a network of existing pipelines, make it the cheapest shale oil field to develop in the US. Talk of “Permania” is bubbling up amongst oil executives.
Overall, however, the American oil industry has considerably weakened since oil prices plummeted from more than $110 a barrel in 2014 to less than half that. As the New York Times reports, just over 522 oil drilling rigs remain active in the US, versus 1,609 in October 2014. And due to climate change, investments in oil production and pipeline building have met with growing opposition from environmental groups and the public. Conversely, the number of rigs drilling in the Permian is rising.
With its latest investment, Exxon Mobil says it has more than doubled its reserves in the Permian Basin. “The acquisition strengthens Exxon Mobil’s significant presence in the dominant US growth area for onshore oil production”, said Darren W. Woods, Exxon Mobil’s new Chief Executive. Woods, formerly the company’s Senior Vice President, was promoted this month to replace Rex Tillerson.
