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Page added on January 18, 2017
Exxon Bets Big on American Oil
Exxon Mobil (XOM) has joined a growing list of oil producers who are expanding in the Permian Basin of Texas, betting that America’s shale boom is far from over.
The world’s largest publicly traded oil company inked a deal with the Bass family of Fort Worth, Texas, to double its footprint in the Permian. Exxon will pay up to $6.6 billion, mostly in stock, for approximately 275,000 acres of land. Exxon said 250,000 of those acres are located in the Permian, the largest oil field in America.
The acquisition is Exxon’s most expensive move since its 2010 buyout of XTO Energy, which made Exxon the nation’s top natural-gas producer. The deal is also Exxon’s first under new CEO Darren Woods, who replaced Rex Tillerson after he was tapped as President-elect Donald Trump’s nominee for Secretary of State.
“The deal doubles [Exxon’s] estimated resources in place in the Permian, and sets the stage, in our view, for years of drillable inventory,” CFRA Research analyst Stewart Glickman wrote in a note to clients.
Billions of dollars have poured into the Permian in recent months. According to Morgan Stanley (MS), companies have invested around $30 billion into 1.2 million net acres since mid-2016.
Just a day before Exxon’s announcement, Noble Energy (NBL) said it agreed to buy Clayton Williams Energy (CWEI) for $2.7 billion in stock, touting the acquisition target’s presence in the Permian. Other energy firms, including Diamondback Energy (FANG) and EOG Resources (EOG), have made deals with ties to the prominent oil field as the industry hopes to cash in on the hot Texas shale play at a time when oil prices are expected to rise.
| Ticker | Security | Last | Change | %Chg |
|---|---|---|---|---|
| XOM | EXXON MOBIL CORPORATION | 86.28 | -1.08 | -1.24% |
| CVX | CHEVRON CORP. | 115.94 | -0.34 | -0.29% |
| NBL | NOBLE ENERGY | 39.79 | -0.26 | -0.65% |
The Permian, which also stretches into southeastern New Mexico, managed to weather the storm brought on by a global oil glut and the sharp decline in prices. The downturn hit shale producers the hardest, given the higher costs associated with extracting oil using a combination of hydraulic fracturing and horizontal drilling.
But production costs in the Permian are on the low end. Exxon can expect positive returns as long as oil trades above $40 a barrel, whereas other shale plays have a breakeven price of as much as $60 a barrel. U.S. crude was trading near $51.50 a barrel on Wednesday morning.
Exxon believes 3.4 billion barrels of recoverable oil is sitting under its newly acquired land in the Permian. The Irving, Texas-based company will boost its Permian operation from 10 rigs to 25 rigs in order to develop the land.
The real estate deal will help Exxon deliver production growth, although one of its main rivals, Chevron (CVX), has more exposure to the lucrative Permian, Morgan Stanley analysts wrote in a research note.
The U.S. Energy Information Administration is projecting a slight uptick in oil prices through 2018, saying strong demand and OPEC’s deal to cut production will further reduce supplies. However, the EIA expects an overall increase in global crude output to counteract the impact of OPEC’s cuts.
Analysts are keeping a close eye on U.S. drillers, who are ready to reopen the spigots amid stronger prices. The latest weekly report from Baker Hughes (BHI) showed an increase of nine rigs in operation compared to a year ago, although the U.S. rig count was down by six rigs versus the prior week. In Canada, the tally surged a whopping 110 rigs in just one week.
14 Comments on "Exxon Bets Big on American Oil"
dave thompson on Wed, 18th Jan 2017 11:45 pm
At today’s price of $51 WTI I doubt there will be much new drilling going on shale wise.
GregT on Wed, 18th Jan 2017 11:56 pm
Rex says; There’s a new sheriff in town, and we’ll adapt to that too.
Sissyfuss on Thu, 19th Jan 2017 12:20 am
Now that Drillerson has vacated they’re playing with house money. New CEO is thinking”hell, this is easy!”
Cloggie on Thu, 19th Jan 2017 3:23 am
If I were Exxon I would bet too on American Oil. Trump has no hurry with renewable energy, no need for too many regulations; he is betting on American nostalgia, when America smelled like gasoline in every corner.
Back in those glorious days, when America was Great.
http://tinyurl.com/j8w8oj9
rockman on Thu, 19th Jan 2017 8:40 am
Cloggie – “…no need for too many regulations” The regs XOM has to contend with in the Permian Basin won’t change with a new POTUS. Those regs are set by the Texas Rail Road Commission. And I doubt the TRRC’s attitude towards DC won’t change from its decades old position: it doesn’t give a sh*t what any federal politician thinks about how it conducts its business. LOL.
I wonder how many folks realize that as long as drilling is done on private or state owned lands in Texas no federal permits or regs apply. BTW there are a sh*t load of TRRC regs they enforce with an iron fist. If curious you can take a few hours looking at the hundreds of those regs. There is actually a small industrty of consulting companies in Texas just to help operators to navigate the regs.
http://www.rrc.state.tx.us/oil-gas/
Cloggie on Thu, 19th Jan 2017 8:46 am
Rockman, no doubt.
But there is also no doubt that Trump will give free passage to fossil fuel development.
http://solarserviceguy.com/trump-on-solar-power-wind-energy/
On a positive note, he will unlikely start WW3 against Russia.
Aaaand… leave renewable energy to us in Europe 😉
Davy on Thu, 19th Jan 2017 9:45 am
Actually Clog, The US and China may be investing in alternative energy much more realistically and effective than your Europe. Europeans tend to invest heavily without good return on investment policy. Your policy on social investment is best in the world as the flip side of this equation. One need only look at the dismal aggregate European growth rate and see poor performance. Europe has some of the worst non-performing loans in the world only China is worse. Yet, China has 3Trillion in reserves to compensate for this (barely). Europe is technically broke if it were not for heavy handed ECB intervention. There is nothing really great in Europe for you to be crowing like a cock rooster every morning.
rockman on Thu, 19th Jan 2017 10:18 am
Cloggie – “But there is also no doubt that Trump will give free passage to fossil fuel development.” Fossil fuel development has always been a priority for every POTUS. I’m not sure what you mean by “free passage”? You mean like the free passage President Obama gave to expanding pipeline systems to import more Canadian oil? You mean like the free passage President Obama gave to expanding coal export facilities in Texas? You mean like the free passage President Obama gave to expanding offshore drilling by offereing more acreage for lease then any other POTUS in history? You mean like the free passage President Obama gave Shell Oil to drill in the Arctic by signing the drill permit? You mean like the free passage President Obama gave to US coal companies by allowing more coal exports in a single year then any other POTUS in history? You mean like the free passage President Obama gave to US oil companies by allowing more oil exports in a single year then any other POTUS in history? You mean like the free passage President Obama gave to US NG companies by allowing more NG exports in a single year then any other POTUS in history? You mean like the free passage President Obama gave to US refineries by allowing more product exports in a single year then any other POTUS in history?
You mean like the free passage President Obama gave to US companies by allowing more coal exports in a single year then any other POTUS in history?
I could go one but I think point made. LOL
Cloggie on Thu, 19th Jan 2017 10:45 am
I’m not sure what you mean by “free passage”?
Obama is gone tomorrow.
Trump made it clear that compared with Obama he will put his cards on revival of the coal industry.
I mean yes/no any consideration with the Paris Accords.
It is still open for debate if Team Trump will abide with it:
http://www.vox.com/energy-and-environment/2017/1/13/14250076/trump-tillerson-paris-climate-deal
If so, than reluctantly.
Cloggie on Thu, 19th Jan 2017 10:49 am
There is nothing really great in Europe for you to be crowing like a cock rooster every morning.
What is great about Europe within the context of the problem cluster, as discussed on this board, which is peak oil and not good/bad performance of certain loans, is that Europe has an integral an generally accepted approach of getting rid of fossil fuel.
Cloggie on Thu, 19th Jan 2017 10:51 am
And as they say in Texas: it ain’t crowing if it is true.
Davy on Thu, 19th Jan 2017 10:57 am
Clog, yes, freeing more up for China and the US who may out compete Europe with a better mix of both fossil fuels and alternatives. I am not saying that will end up being the case in 20 years. What I am doing is discounting your narrative of alternatives-good and fossil fuels-bad. I agree in carbon terms and I am all for a big phase out but in economic terms your equation is yet to be proven. IOW you are dreamy.
rockman on Thu, 19th Jan 2017 5:25 pm
Cloggie – “Trump made it clear that compared with Obama he will put his cards on revival of the coal industry.” To late for the PEOTUS to steal credit from President Obama for the coal patch revival. Despite President Obama’s efforts to help the coal patch by increasing exports to record levels he couldn’t counter the effects of the prices collapse that began almost to the day he took office. From $130/ston to $50/ston as the chart below shows. But it also shows the surge in coal prices during President Obama’s last days in office.
Obviously with those big increases the coal patch is on the way to recovery. It would be unfair for a President Trump to take credit for something neither he nor President Obama have control over: the dependency of the coal patch’s revenue/health on prices.
http://www.tradingeconomics.com/commodity/coal
Cloggie on Thu, 19th Jan 2017 6:25 pm
Rockman, I got my “wisdom” regarding Trump’s energy policy from Michael Klare, somebody who “tangentially” was once associated with the peak oil-2015 movement of former fame, but years ago switched to the “there is enough to fry us all” club (so did I with considerable delay).
Michael Klare:
http://tinyurl.com/zryr8k2
Drowning the World in Oil
Trump’s Carbon-Obsessed Energy Policy and the Planetary Nightmare to Come
To summarize the article:
Eliminating All Constraints on Carbon Extraction
I understand your points regarding markets and prices… however the US government still exists and has a say in it all. And it looked as if Trump simply refuses to let himself be constrained by inconveniences like the Paris Climate Accord. Although it also seems that Team Trump could have a moderating influence on him:
https://www.scientificamerican.com/article/trumps-pick-for-secretary-of-state-backs-paris-climate-accord/