Xin­chao pur­sues $1b oil deals in Per­mian Basin

China Daily (Canada) - - BUSINESS - By BLOOMBERG in Chicago

China’s Yan­tai Xin­chao Industry Co is pur­su­ing US oil ac­qui­si­tions worth as much as $1 bil­lion in the Per­mian Basin, and it won’t be sat­is­fied let­ting oth­ers run the show, ac­cord­ing to the head of the com­pany’s US sub­sidiary.

Un­like oth­erAsian com­pa­nies that bought stakes in United States en­ergy prospects in re­cent years, Xin­chao is seek­ing so-called op­er­ated po­si­tions, or deals that give it pri­mary author­ity over ev­ery­thing from how deep to drill to how in­ten­sively to frack each well, said Cur­tisNew­strom, chief ex­ec­u­tive of­fi­cer of Blue Whale En­ergy North Amer­ica Corp, the US arm of the Shang­hailisted com­pany.

Hous­ton-based Blue Whale made a splash last year with its first two deals on be­half of its Chi­nese par­ent, a com­pany vir­tu­ally un­known in US ex­plo­ration cir­cles: A $315 mil­lion ac­qui­si­tion of drilling rights across 7,100 acres from Juno En­ergy II in April 2015 and a $1.1 bil­lion trans­ac­tion in November with Tall City Ex­plo­ration LLC and Ply­mouth Petroleum LLC. Both deals in­volved Texas oil fields. It is now on the search for other as­sets val­ued at be­tween $500 mil­lion and $1 bil­lion, he said.

“We’re go­ing to con­tinue look­ing for op­por­tu­ni­ties,’’ New­strom said in an in­ter­viewon the side­lines ofHart En­ergy’s DUG Per­mian Basin con­fer­ence in Fort Worth, Texas. “Xin­chao is a very ag­gres­sive com­pany and it’s look­ing to grow.’’

Xin­chao and New­strom are up against some stiff com­pe­ti­tion in try­ing to ex­pand their port­fo­lio in the Per­mian basin ofWest Texas and New Mex­ico. International heavy­weights and do­mes­tic ti­tans from Exxon Mo­bil Corp to Oc­ci­den­tal Petroleum Corp have been ramp­ing up ac­qui­si­tion ef­forts in the re­gion at a break­neck pace.

Drilling rights in the rich­est part of the re­gion have been com­mand­ing sell­ing

Xin­chao is a very ag­gres­sive com­pany and it’s look­ing to grow (in US).”

prices as high as $35,000 an acre, rem­i­nis­cent of the height of the shale land grab half a decade ago, ac­cord­ing to Mike Win­terich, pres­i­dent of Three Rivers Op­er­at­ing Co III LLC, an Austin, Texas-based Per­mian oil ex­plorer backed by pri­vate eq­uity gi­ant River­stone Hold­ings LLC.

Pri­vate eq­uity firms are also scour­ing the Per­mian Basin for ac­qui­si­tions, height­en­ing com­pe­ti­tion for rel­a­tive new­com­ers such as Blue Whale, which was formed in 2014. More than 100 pri­vate eq­uity firms have teams eval­u­at­ing po­ten­tial Per­mian trans­ac­tions, Win­terich said dur­ing a pre­sen­ta­tion at the Hart En­ergy event last month.

Blue Whale hired for­mer Cono­coPhillips ex­perts in the use of water-flood­ing to sweep crude out of ag­ing fields to boost re­sults from the wells ac­quired from Juno along the north­ern edge of the Per­mian, New­strom said.

On the Tall City-Ply­mouth as­sets, Blue Whale plans to raise the num­ber of rigs drilling new wells to three from two. The com­pany has iden­ti­fied 1,500 to 1,600 at­trac­tive tar­gets across the 78,000 acres of drilling rights it ac­quired, New­strom said. He didn’t give a time­frame for adding the next rig.

New­strom de­scribed him­self and Xin­chao as “ag­nos­tic’’ with re­gard to US oil re­gions to in­vest in. Still, given the cur­rent crude prices, the Per­mian is prob­a­bly the only re­gion where newwells will make money, he said.

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