A major oil and gas producer in the Permian Basin in New Mexico sold a large portion of its assets in the region to an Oklahoma-based operator as the industry in the prolific oilfield continued to see a rebirth in activity following historic declines during the coronavirus health crisis.
Empire Petroleum purchased the land and oil wells from ExxonMobil subsidiary XTO Energy in the Eunice Monument Field in Lea County within the western portion of the Permian that spans from southeast New Mexico to West Texas.
In total, Empire bought 700 oil, gas and injection wells from XTO, with a capacity to produce about 1,100 barrels of oil equivalent per day at 67 percent oil.
To finance the acquisition, Empire entered an about $16 million deal with financier Energy Evolution Master Fund Ltd., paying 3.8 percent annual interest.
Mike Morrisett, president with Empire said the assets were in a highly-valued area and that acquiring the wells and land meant Empire operates in five state on 100,000 acres with production of about 1,800 barrels of oil equivalent per day.
The Eunice Monument Field was first discovered in 1929 on the northwestern edge of the Permian in southeastern Lea County about 15 miles southwest of Hobbs.
The U.S. Geological Survey estimated up to 4.5 billion barrels of oil could be recovered from the field, making it one of the largest in the U.S.
“In our view, these assets have current infill drilling and return-to-production well potential that should shortly enhance daily production,” Morrisett said.
Chief Executive Officer Tom Pritchard said purchasing the assets from XTO was a move by Empire to increase its returns for investors by moving into areas with proven production and growth potential.
He said the Eunice Monument area holds another 23,400 potentially productive acres for future expansions, and the company hopes to grow in the Permian.
“This acquisition is a terrific example of what Empire looks to manage in their assets: mature producing oil properties with predictable, long life production with significant upside potential,” Pritchard said.
“The pipeline of growth opportunities around (the Eunice Monument Field) remains robust, and we are currently evaluating additional deal flow with a focus on building scale in the Permian.”
Major oil and gas operators in the basin and other major oil plays in the U.S continued to see increased activity and transactions as the impacts of COVID-19 appeared to subside.
In April 2020, when the pandemic first hit the U.S., the price per barrel plummeted into negative territory for the first time in history, leading to stymied production brought on by slumping fuel demands amid government restrictions on travel and businesses in response to the health crisis.
But about a year later, the price per barrel appeared to sustain pre-pandemic levels with West Texas Intermediate (WTI) – a grade of oil used as a domestic price benchmark – trading at $66 per barrel on Monday, per the latest data from Nasdaq.
WTI held in the $60s for most of April and May, after steadily growing since January.
That meant oil and gas rigs also grew in the Permian and the two states that share the shale play, with Baker Hughes reporting 231 total rigs in the Permian as of Friday – the same as a week ago but up 69 from a rig count of 162 a year ago.
Texas dropped two rigs in the last week, Baker Hughes reported, leading the nation with a total of 214 which marked a 76-rig increase from a total of 138 on the same date last year.
New Mexico added two rigs as of Friday for a total of 72 rigs, 9 more than a total of 63 rigs last year.
But even as more rigs go in to the Permian and production is poised to continue growing, major companies continued to focus in the wake of COVID-19 on maximizing investments and efficiency after seeing dramatic losses during the pandemic.
That trend recently took the form of a $17 billion merger of Permian-oil-focused Cimarex and Cabot Energy which was mainly targeted the natural gas fields of the Marcellus Basin in Pennsylvania.
While most of the recent mergers among energy companies were in-basin transactions aimed at asset consolidation, the deal between Cimarex and Cabot was more about combining assets to form a larger, more resilient company, said Andrew Dittmar, mergers and acquisitions (M&A) analyst with energy analytics firm Enverus.
He said both companies were potential targets of buyouts from larger companies in the two regions, and the merger displayed an intention by both to remain independent.
“Past mergers have generally involved in-basin consolidation with its easy readthrough to economies of scale and efficient operations,” he said. “Instead, this deal is driven by financial-side metrics, primarily boosting the base dividend to be one of the more aggressive in the industry while also adding a variable payout to the mix.
“The increased dividend combined with the stability of operating as a larger company is targeted at attracting long term investors.”
Adrian Hedden can be reached at 575-618-7631, firstname.lastname@example.org or @AdrianHedden on Twitter.