Exxon Mobil is changing how they initiate shale acquisitions, as the world energy giant spreads into West Texas, the predominant U.S. oil-producing play.
Executives of XTO Energy, Exxon’s shale-drilling unit, are negotiating with small producers in the Permian Basin on acquiring firms or combining ownership, according to insiders. The company is offering profit sharing to operators instead of upfront stock options or cash payouts, according to sources who wanted to remain anonymous.
Drillers are having a difficult time staying afloat with crude oil hovering around a six-year low. Many independents are in between a rock in a hard place and look forward to talks from the larger corporations that can withstand oil in the 40s longer.
In a phone interview, Frost Investment Advisors fund manager Ted Harper states, “You’re going to experience hard times.”
The XTO executives sent from the corporate headquarters in Fort Worth have been working in the region for over a year trying to hash out new deals.
The firm proposes to take care of all the drilling cost incurred, testing and inspection on a given parcel. In return, Exxon will give one-third of its revenue from any exploration to its partners.
The Permian Basin is a group of oil fields spanning Texas and New Mexico and pumps more oil than half of some OPEC nations. Oil production within the region will increase by 1 percent next month to 2 million barrels each day, made possible by technological drilling advancements, according to intelligence analysts at Bloomberg.
For investors at Exxon, there is zero dilution to common shares, making the new deal strategies more favorable.
Exxon’s drilling unit XTO was purchased strictly to acquire and deal in shale plays. Soon after purchasing XTO in 2010, deals were immediately closed to buyout Ellora Energy in Haynesville and later Phillips Resources and TWP Incorporated in Marcellus. Totaling almost $2.4 billion.
Alan Jeffers, an Exxon spokesperson states, “We are looking for ways to increase shareholder worth.”
Rex Tillerson, Exxon’s Chairman and CEO revealed that there are plans to increase the crude output from Permian and other U.S. shale fields in the next three years. Even as the energy price increase has affected the drilling budgets in the industry.
In less than two years, Exxon has bought the drilling rights or funded partnerships in five Permian Basin deals. The firm controls drilling rights to 1.5 million acres in the Permian now, which is more than its holdings in Iraq or the U.K.
Since Tillerson focused a new dimension on shale in the US with the $35 billion acquisition of XTO, its US output is on the rise. In 2014, the wells contributed to 22 percent of Exxon’s crude output.
Next, the company is increasing its activity in North Dakota and Oklahoma.