Exxon Mobil joins wildcatters in West Texas

$6.6 billion acquisition of land and companies from Bass family gives oil major plenty to drill in West Texas

Exxon Mobil Corp. has joined the drilling frenzy in West Texas with a $6.6 billion deal to snap up enough land there to pump oil for two decades.

Exxon Mobil Corp. has joined the drilling frenzy in West Texas with a $6.6 billion deal to snap up enough land there to pump oil for two decades.

The U.S. oil giant said Tuesday that it acquired several private companies and 275,000 acres in the Permian Basin controlled by Fort Worth’s Bass family, which includes some of the most storied Texas oil billionaires and investors. Exxon Mobil’s investment is by far the largest in the Permian, a particularly prolific shale oil field that has attracted companies of all sizes and a combined $27.2 billion in land deals over the past year.

“All these guys putting money to work are going to have to drill,” said Stephen Trauber, head of global energy investment banking at Citigroup in Houston. “They’re going to see pretty significant growth. There are still several more deals that could get done.”

The resurgent Texas oil patch has become the epicenter of the U.S. oil industry’s recovery after a brutal two-year oil bust. It is set to increase oil production this month by the largest amount in a year. Analysts believe an industry comeback, as soon as 2018, could eventually threaten OPEC’s efforts to curb the world’s oil glut.

If oil prices stay at current levels, around $50 a barrel, oil production in the Permian Basin and elsewhere in the United States could rise by half a million barrels a day by year’s end — about one-third the promised output cuts of the Organization of the Petroleum Exporting Countries and other major producers, such as Russia. By 2018, revived production could once again throw off the balance between global oil supply and demand, leading to another slide in crude prices, said Ann-Louise Hittle, an oil market analyst at Wood Mackenzie.

On Tuesday, the Energy Department said oil production in the Perm-

ian Basin will increase by 53,000 barrels a day this month, the biggest monthly increase in a year, a result of the 130 rigs dispatched to the region in recent months. Multibilliondollar deals like Exxon Mobil’s could keep rigs running hard.

Exxon Mobil and other major energy companies largely missed the shale oil bonanza a few years ago as smaller rivals took control of the nation’s most coveted oil fields and led the biggest domestic energy boom in four decades.

But the Irving-based oil company, the largest of its kind in the country, cemented its place among the scrappy West Texas drillers on Tuesday when it said it purchased private energy producer BOPCO and a handful of subsidiaries owned by the wealthy Bass family for $5.6 billion in shares and $1 billion in cash, which it plans to pay over several years starting in 2020.

Bass dynasty

The Bass dynasty began with Perry Bass, who inherited $11 million from his uncle, renowned wildcatter Sid Richardson, who in turn struck oil a century ago. Bass set up Bass Brothers Enterprises in 1960 to manage the family’s oil land and ranches.

His sons, Sid, Robert, Edward and Lee, have since vastly expanded the empire; Robert, for example, is chairman of the Las Vegas supersonic airplane company Aerion Corp., president of Forth Worth private equity firm Keystone Group and the founder of the Oak Hill family of funds. Forbes valued the family at $9 billion in 2014 but acknowledged that the Basses are so private, they may be worth far more.

Exxon Mobil said the 275,000 acres it purchased from the Basses will double its resources in the Permian to 6 billion barrels of oil equivalent. It’s so vast that the company could plant 15 or more rigs there and still have plenty of oil to produce for the next 20 years, said Scott Silvestri, an Exxon Mobil spokesman.

Big rivals to expand

Exxon Mobil isn’t the only major oil company investing in the Permian. In November, Chevron Corp. said it plans to spend $1.5 billion a year developing what executives called a “well factory” across its 2 million Permian Basin acres in West Texas and New Mexico.

The California-based oil major said it could profit from drilling in the region at $40 to $50 a barrel oil. By the end of the decade, Chevron said, it could increase oil production there by as much as 200,000 barrels a day.

Royal Dutch Shell also has some 300,000 acres across West Texas and New Mexico, pumping 31,000 barrels of oil equivalent a day there, with plans to expand. The company’s chief financial officer, Simon Henry, called the region the “crown jewel” of its energy portfolio in the United States.

For years, oil companies bought out rivals for the proven oil and gas reserves they had on the books. Now, the vast untapped resources within shale plays have drillers focused on long-term drilling prospects, rather than existing reserves, and the more land they can buy in the most productive areas, the better.

‘Real estate plays’

“They’re real estate plays,” said John Herrlin, an analyst at French bank Société Générale. “It’s all about location, location, location.”

On Tuesday, Citigroup, Credit Suisse and J.P. Morgan launched an initial public offering of Denver oil driller Jagged Peak Energy, and the value of its shares implies its 60,800 acres in the Southern Delaware Basin, a section of the larger Permian, are worth about $60,000 an acre, Citigroup said. Last week, Tulsa oil explorer WPX Energy joined the ranks of companies buying further into the ultra-hot West Texas basin. It scooped up 18,000 net acres in the Delaware Basin, the Permian’s western half, for $775 million in cash, from Tulsabased Panther Energy Company II and Sugar Land-based Carrier Energy Partners.

WPX valued the deal at $28,500 per acre. It’s a follow-up to a $500 million deal it struck two years ago in the region — before other drillers recognized the potential of the shale play.

“We had a lot of eyebrows raised — ‘You know, what are you guys doing?’ ” Clay Gaspar, senior vice president and chief operating officer for WPX, said Tuesday. “Fast-forward 12 months later, and everyone sees it.”