Occidental Leans Into Midland Basin With $12 Billion Acquisition
Houston-based Occidental said that one reason it is buying private producer CrownRock is to gain more access to the deep, relatively untapped Barnett formation.
In yet another move to consolidate the US shale sector, Occidental Petroleum (Oxy) has announced its plan to buy the private Permian Basin producer CrownRock for $12 billion. The deal bolsters Oxy’s position by nearly 94,000 net acres and an incremental 170,000 BOED, 80% of which is liquids.
The acquisition, structured as a cash-and-stock deal, marks a notable shift in Oxy's strategic focus from the Delaware Basin to a more balanced portfolio that now includes CrownRock's substantial Midland Basin assets. The company will inherit almost 900 gross operated wells and an estimated 1,700 undeveloped well locations—over 70% of which are classified as "development-ready" at oil prices below $60/bbl.
The transaction will be financed with $9.1 billion in cash, the issuance of $1.7 billion in common shares, and the assumption of CrownRock’s debt exceeding $1.2 billion. Midland-based CrownRock was formed in 2007 as a joint venture between private-equity groups Lime Rock Partners and CrownQuest.
Commenting on the deal, Vicki Hollub, CEO of Oxy, said, “We believe the acquisition of CrownRock’s assets adds to the strongest and most differentiated portfolio that Occidental has ever had. We found CrownRock to be a strategic fit, giving us the opportunity to build scale in the Midland Basin and positioning us to drive value creation for our shareholders with immediate free cash flow accretion.”
Oxy has also said that it is likely to implement a new development strategy upon the takeover. The Houston-based independent operator plans to use wider well spacing in the newly acquired acreage, diverging from CrownRock's development template of six to seven wells per section to five wells per section. Additionally, Oxy aims to drill 3-mile laterals, which represent one of the most recent efficiency improvements adopted by Permian operators in recent years.
In addition to almost 900 gross operated wells, Oxy will gain an estimated 1,700 undeveloped well locations, more than 70% of which are described as “development-ready” at oil prices below $60/bbl. A news release from the companies added that 750 of the future wellsites are expected to be economic at sub-$40/bbl prices.
Energy analytics firm Enverus Intelligence Research (EIR) issued a note following news of the deal that said at a cost of more than $50,000 per acre, Occidental has pushed Permian valuations back up to levels not seen since the so-called land rush period of 2017–2019.
"The driving force behind rising valuations is an urgency by large companies to secure the remaining high-quality US shale inventory," explained Andrew Dittmar, a senior vice president for EIR. He added that EIR estimates only 6 years of drilling left in the highest-quality rock in the US, defined as delivering a 10% return at $45/bbl prices, and that 70% of that dwindling inventory is found in the Permian region.
Oxy’s latest deal comes 4 years after it spent $38 billion to acquire Anadarko Petroleum and is only a couple of months on the heels of two other acquisitions that have reshaped the US shale sector.
In October, ExxonMobil announced it was buying out Pioneer Natural Resources, the Permian’s largest oil and gas producer, in an all-stock deal worth about $59.5 billion. Later that month, Chevron moved to acquire US industry stalwart Hess Corp. in another all-stock megadeal valued at $53 billion.
Betting on the Barnett
Oxy indicated in its announcement that additional exposure to the Barnett formation was at least a partial driver behind the deal. The formation is better known as the dry-gas play in north Texas that launched the shale revolution, but, in west Texas, it transforms into an oil-rich layer.
Among only a handful of Midland Basin operators who have begun testing the Barnett over the past couple of years, Oxy said its wells targeting the formation are 34% more productive than the basin average. The analyst note from EIR echoed Oxy's confidence, describing the company as a leader in the Permian Barnett play that has produced "very promising results" so far.
The wells are understood by analysts to be prolific, but they are also among the shale sector’s most expensive given their average depth of around 11,500 ft is from 2,000 to 2,500 ft deeper than the most popular Permian targets, the Wolfcamp and Spraberry shales.
Oxy also said it will seek additional upside from the newly acquired position by expanding its unconventional enhanced oil recovery program that aims to build off of a successful pilot test it did in the Midland Basin.
Oxy also highlighted that the transaction includes a significant infrastructure package consisting of 10,000 acres of surface rights, 55 miles of freshwater pipelines, an unspecified number of saltwater disposal wells with a capacity of 473,000 B/D, and four water recycling plants.
Subject to shareholder and regulatory approvals, Oxy expects the deal will close in the first quarter of the new year.