Occidental Petroleum Corp. (Oxy) has agreed to acquire privately held Permian Basin oil and natural gas producer CrownRock L.P. in a deal valued at roughly $12 billion.
Oxy plans to finance the acquisition by incurring $9.1 billion in new debt, issuing about $1.7 billion of common equity and assuming CrownRock’s $1.2 billion of existing debt, Oxy management said.
The transaction, slated to close during the first three months of 2024, is the latest of several blockbuster deals announced this year in the Lower 48 oil and gas patch.
Midland, TX-based CrownRock is a joint venture of CrownQuest Operating LLC and Lime Rock Partners.
Houston-based Oxy was the 15th-leading publicly traded natural gas producer in the United States as of the third quarter, according to NGI calculations. Its U.S. upstream operations target the Permian and Denver-Julesburg basins.
“We believe the acquisition of CrownRock’s assets adds to the strongest and most differentiated portfolio that Occidental has ever had,” said Oxy CEO Vicki Hollub. “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…”
The CrownRock assets, which span 94,000 net acres in the Permian’s Midland sub-basin, are expected to add 170,000 boe/d of “high-margin, lower-decline unconventional production in 2024, as well as approximately 1,700 undeveloped locations,” Oxy said. This would bring Oxy’s expected Permian production to over 750,000 boe/d for 2024, up from forecast 2023 production of 583,000 boe/d, said Oxy’s Richard Jackson, head of U.S. onshore resources and carbon management, during a call with investors.
“CrownRock has been operating efficiently with five rigs for several years, and we expect to maintain this activity level, creating opportunities for low single-digit growth for these assets over the next few years, along with significant free cash flow,” Jackson said.
The deal would expand by 33% Oxy’s inventory of unconventional assets that break even below an oil price of $40/bbl, the firm said. The CrownRock assets “are well positioned alongside Occidental’s legacy Midland Basin business,” Oxy added.
Basin Diversification
Oxy management highlighted that the CrownRock assets are “adjacent to some of the most prolific wells in the basin,” and that most of the inventory “is located in largely clean and undeveloped sections, providing ample opportunity for Occidental customization and upside…”
Oxy said the acreage is connected to “hundreds of miles of gathering and water infrastructure,” and includes four water recycling plants.
“Additionally, over 200 miles of gas gathering pipelines support reliable takeaway, with advantaged midstream contracts already in place,” noted Jackson. “And with 10,000 surface acres, it provides further support for common infrastructure.”
Following the transaction, the Midland would move from 9% to nearly 30% of Oxy’s total Permian unconventional production, said Jackson. “Greater basin diversification is expected to increase operational and supply chain efficiencies through economies of scale,” he added.
In conjunction with the CrownRock deal, Oxy announced a new $4.5-$6 billion planned divestiture program, which the firm expects to complete within 18 months of closing the transaction.
Oxy is targeting capital spending of $7.3-$7.4 billion of capital spend in 2024, including about $900 million toward the CrownRock assets, said Oxy CFO Sunil Mathew. “This level of investment maintains the current five-rig development pace,” he said.
Jackson said Oxy also sees potential to expand unconventional enhanced oil recovery (EOR) in the Midland, where the firm has had a successful carbon dioxide (CO2) EOR pilot in place for several years.
“This capability can provide incremental recovery, store anthropogenic CO2, and lower our environmental footprint by reusing existing wells already drilled across the position,” Jackson said.
Oxy has been at the forefront of investment in direct air capture of carbon dioxide, although hydrocarbons remain the company’s primary revenue driver. Billionaire investor Warren Buffet’s Berkshire Hathaway Inc. recently upped its equity stake in Oxy to more than 25%.
Seller’s Market
This year’s dealmaking bonanza has included Chevron Corp.’s $53 billion merger with Hess Corp., and ExxonMobil’s $59.5 billion acquisition of Permian Natural Resources Co.
As for the Oxy-CrownRock deal, “At over $50,000 per acre after accounting for the value of existing production, the price paid by Occidental shows valuations have fully reclaimed the highs last seen during a frenzy of buying in 2017-2019 and are inching towards records,” said Enverus Intelligence Research’s (EIR) Andrew Dittmar, senior vice president, on Monday. “Occidental was also one of the major participants in that wave of consolidation, nearing but not achieving the highest acquisition price paid when it valued Anadarko Petroleum Corp. at nearly $60,000 per acre.”
Dittmar added, “The driving force behind rising valuations is an urgency by large companies to secure the remaining high-quality U.S. shale inventory. EIR calculates there is only about six years of the highest quality inventory, capable of generating a 10% return at a $45 oil price, left at current drilling rates and over 70% of it is in the Permian Basin.
“With no new shale plays on the horizon and global opportunities shrinking, the Permian also leads in potential for finding new resource as drillers test additional benches of the region’s stacked pay.”
