Exxon Mobil Corp (>> Exxon Mobil Corporation) said on Tuesday it will pay up to $6.6 billion to double its holdings in the Permian Basin of west Texas and New Mexico, the largest oil field in the United States.
The deal, Exxon's biggest since its 2009 buyout of XTO Energy, is the latest by oil producers across the Permian since last summer, with technological improvements and rangebound oil prices fueling the buyouts.
Exxon is exchanging an initial $5.6 billion in stock for leases covering roughly 275,000 acres from the Bass family of Fort Worth, Texas. Additional payments of up to $1 billion will start in 2020, depending on how the acreage performs, Exxon said in a statement.
Most of the wells to be drilled on the land should provide "attractive returns" with oil prices <CLc1> at or above $40 per barrel, Exxon spokeswoman Suann Guthrie said.
Much of the Permian's oil can be pumped at current prices of about $53 per barrel, whereas the economics of other large U.S. shale fields require a price of $60 per barrel or more.
Exxon, WPX Energy Inc (>> WPX Energy Inc), Diamondback Energy Inc (>> Diamondback Energy Inc), Noble Energy Inc (>> Noble Energy, Inc.) and others have each paid billions since last summer to grow in the Permian.
About 250,000 acres is on three large parcels in the Permian, and the rest is on oil fields in Colorado and Louisiana.
The Permian land, which Exxon estimates holds 3.4 billion barrels of oil retrievable with current technology, produces about 18,000 barrels of oil equivalent per day (boepd), most of which is crude.
Most of the acreage is held by production, meaning Exxon will not have to rush to add new wells to honor lease contracts.
Exxon pumps about 140,000 boepd from its current Permian holdings of roughly 1.5 million acres.
The company operates 10 drilling rigs in the Permian and said it will boost that to 25 to develop the new acreage, though no timetable has been set.
The deal is the first major move by Chief Executive Darren Woods since he took over from Rex Tillerson, who has been nominated by President-elect Donald Trump to be U.S. secretary of state.
Exxon plans to run the acreage through its XTO subsidiary, which operates elsewhere in Texas and North Dakota.
Exxon's shares were up about 0.6 percent in midday trading.
(Reporting by Ernest Scheyder in Midland; Additional reporting by Arathy S Nair in Bengaluru; Editing by Savio D'Souza and Daniel Wallis)
By Ernest Scheyder