Exxon's Permian Strategy | Russell T. Rudy Energy LLC
Exxon Mobil, through its domestic shale subsidiary XTO Energy, is taking an innovative approach to structuring deals in the Permian Basin. Since its acquisition of XTO in 2010, the company has been committed to increasing domestic shale production. Shortly after the XTO transaction, Exxon bought Ellora Energy Inc. (Haynesville shale of North Louisiana), as well as Phillips Resources and TWP Inc. (Marcellus shale of Pennsylvania).
Exxon now intends to double domestic shale production over the next three years. However, instead of outright acquisitions, the company is now approaching small, closely held operators in the Permian Basin with an alternative to massive cutbacks or loss of independence. Rather, Exxon is offering to cover all drilling and appraisal costs, as well as up to 30% of future production, in exchange for the rest of the revenue. Instead of immediate cash or stock payouts, the smaller enterprises will have the potential for long-term returns. Exxon shareholders will benefit as well since there will be no stock involved and the transaction would not dilute their ownership.
Exxon, through XTO, has already consummated five such deals in the region and now controls 1.5 million acres of drilling rights. This is twice the size of its holdings in Iraq or the U. K. sector of the North Sea. The company also intends to pursue further expansion of its shale positions in Oklahoma and North Dakota.
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