Noble Energy has agreed to buy Clayton Williams Energy for $2.7 billion in stock and cash to expand in America’s hottest shale play in West Texas.
The combination will create the second-largest acreage position in the Southern Delaware Basin of the Permian Basin shale formation, Houston-based Noble said in a statement on Monday. The deal provides more than 4,200 drilling locations on about 120,000 net acres, with resources of more than 2 billion barrels of oil equivalent, Noble said.
The Permian has been a hot spot for deals because it’s one of the few areas in the world where producers managed to make a profit during the downturn in oil prices. Noble had long coveted the Clayton Williams assets because of their high oil content and the overlap with its own properties. The deal gives the company a large base in both the Permian and in the D-J basin shale plays in the Rocky Mountains region, said Robert Morris, a Citigroup analyst in New York.
The acquisition “resolves a key investor concern — the depth of Noble’s inventory,” Morris said in a research note on Tuesday. “Noble now holds over 2 billion barrels of resource potential in two of the most economic oil plays in North America — the D-J and Delaware Basins.”
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Clayton Williams Energy, based in Midland, is run by the well-known wildcatter who unsuccessfully ran for governor in 1990 against Ann Richards. In a statement, Williams, 84, called Noble “an ideal partner.”
“I am very proud of the company we have built over the past 25 years and I am pleased that Noble Energy will be leading the development of our properties going forward,” Williams said in the statement.
In a telephone interview, David Stover, Noble’s chairman and chief executive officer, said the Clayton Williams holdings were at “the top of the list” as it sought to expand in the Permian.
“From all our technical work, we’ve identified this area as the core of the core,” he said.
Many of the wells are economical with oil at around $40 a barrel, Stover said. With crude trading in the $50-to-$60 range, which Stover considers a sustainable level, Noble can fund the operations with its cash flow. In addition to the productivity of the properties, Noble’s distribution assets in the area will help keep costs low, he said.
Noble will probably sell other assets to help fund development in the Permian and retire debt it’s taking on from Clayton Williams, Timothy Rezvan, a Mizhuo Securities analyst in New York, said in a note to clients. Projects in the eastern Mediterranean Sea and the Marcellus shale gas play in the U.S. seem likely targets, along with 100,000 “non-core” acres the company is picking up from Williams, Rezvan wrote.