Wave of deals puts US shale oil back in focus

NEW YORK: American shale oil is back at the center of the global petroleum game, a driver of major deals involving petroleum giants more inclined to buy up rivals than to undertake wildcat exploration.

On Monday, Diamondback Energy announced the $26 billion acquisition of Endeavor Energy, combining two of the top 10 producers in the Permian Basin, which has the largest unconventional petroleum reserves in the United States. The Permian, which is located in western Texas and eastern New Mexico, has emerged as an especially hot commodity.

In October, ExxonMobil announced the acquisition of Pioneer Natural Resources, the biggest Permian producer, for about $60 billion. That was followed in December by Occidental Petroleum’s $12 billion takeover of CrownRock, another Permian producer.

“Consolidation in the space was a bit overdue because the exploration and production space is fairly fragmented, or had been, until all these deals,” said CFRA Research analyst Stewart Glickman.

“People have this idea that it’s very monopolistic,” Richard Sweeney, an economics professor at Boston College, said of the oil industry in places like the Permian. “The US oil and gas market is incredibly fragmented,” Sweeney said. “There’s, like, easily 50 firms that drill a substantial number of wells in Texas.” One large deal that doesn’t involve the Permian is Chevron’s $53 billion purchase of Hess Corporation. However, Chevron highlighted the appeal of Hess’s assets in the Bakken region in the state of North Dakota, another big shale region.

Such shale basins take advantage of horizontal drilling techniques, which permit the drilling of wells from miles away once large companies buy neighboring sites. The addition of the Pioneer acreage “means fewer wells” and lower capital spending, said Kathryn Mikells, chief financial officer at ExxonMobil.