Occidental Petroleum buys CrownRock for $12 billion in Permian Basin - Carlsbad Current Argus

Occidental Petroleum buys CrownRock for $12 billion in Permian Basin

Occidental Petroleum makes $12 billion deal to grow Permian Basin oil and gas footprint
Adrian Hedden

A leading oil and gas producer in the Permian Basin bought out a smaller company to increase its presence in the region amid a series of mergers in the final weeks of 2023.

Occidental Petroleum announced Dec. 11 that it would acquire CrownRock in a $12 billion deal that would add assets to Occidental’s portfolio in the Midland sub-basin on the eastern side of the Permian Basin in West Texas.

The deal would add 94,000 acres to Occidental’s holdings in the area, along with 1,700 undeveloped locations with estimated production of 170,000 barrels of oil equivalent per day (boepd).

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It was expected to close in the first quarter of 2024

Chief Executive Officer Vickie Hollub said the deal was intended to build scale in booming Permian Basin by consolidating working assets in the region.

“We believe the acquisition of CrownRock’s assets adds to the strongest and most differentiated portfolio that Occidental has ever had,” Hollub said.

“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.”

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The Occidental-CrownRock merger followed Exxon Mobil’s acquisition of Permian-focused Pioneer Natural Resources for about $60 billion and Chevron’s $53 billion purchase of Hess earlier this year.

Factors driving large oil company deals

Andrew Dittmar, director at international energy analytics firm Enverus, predicted this latest deal was part of a trend of large oil companies seeking to increase inventory in the Permian by buying up existing assets.

This was because the region was running out of unused inventory in the region as oil production grew.

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Enverus estimated only about six years of the top shale inventory remained in the Permian, assuming current drilling rates.

“The driving force behind rising valuations is an urgency by large companies to secure the remaining high-quality U.S. shale inventory,” Dittmar said. “Occidental has been a leader in that by drilling the deep Barnett bench within the Midland Basin and generating very promising results.”

Dittmar also credited the buyout trend with increased demand for fossil fuel products as the international community grapples with high costs associated with attempts to transition to lower-carbon energy sources like wind and solar power.

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“Oil and gas companies are also perhaps feeling more positive about the long-term need for their products as the world grapples with the realities and expense of transitioning to low carbon energy,” he said.

These market tensions were likely behind predictions that oil and gas production would increase in January in the Permian, with the Energy Information Administration forecasting the region would add 5,000 barrels of oil per day (bopd).

That would bring the Permian Basin to a total of 5.99 million bopd in January 2024, the EIA reported, up from the about 5.98 million bopd reported for December – the most of any other U.S. shale region.

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Permian Basin's growth in 2023

The Permian was also set to lead U.S. fossil fuel regions in growth in natural gas, as the EIA forecast the region would add 130 million cubic feet per day cf/d in January, for a total of about 24.4 billion cf/d – the second highest in overall gas production after the Appalachia region’s 35.6 billion cf/d in January.

The Permian Basin also maintained its leadership in the U.S. for oil and gas drilling rigs with 310 rigs reported by Baker Hughes as of Friday, after dropping three rigs in the last week.

The two states that shared the Permian Basin: Texas and New Mexico, held the first- and second-highest rig counts among U.S. states, Baker Hughes reported.

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Texas held steady at 308 rigs during that time, and New Mexico dropped two rigs for its total of 100, records show.

Despite the lowest rig counts since January 2022, the EIA reported in November oil production in the Permian continued to grow as individual well productivity improved throughout the region.

In the first eight months of 2023, initial production (IP) per new well, determined by production in a well's first month, averaged 847 bopd, an increase of about 750 bopd since 2007, read the report.

The Permian led the U.S. in IP growth in 2023, up 8 percent during the first eight months of this year compared with 2019, the EIA reported, while other regions saw declines of up to 5 percent.

“As the rig count declines, producers may be able to maintain production or produce more oil with fewer rigs through technological advances or other operational efficiencies that boost output per well,” the report read.

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on X, formerly known as Twitter.