Occidental Petroleum Corp. (NYSE:OXY) has acquired producing and non-producing leasehold acreage in the Permian Basin from private sellers. Separately, the company acquired interests in several Permian Basin enhanced oil recovery (EOR) and CO2 properties, and related infrastructure.
The total purchase price for these transactions is approximately $2 billion, which has been funded from existing cash on hand.
- The leasehold acquisition includes approximately 35,000 net acres in Reeves and Pecos counties, Texas, in the Southern Delaware Basin, in areas where Occidental currently operates or has working interests.
- Approximately 7,000 barrels of oil equivalent (BOE) per day of net production (72% oil) from 68 horizontal wells.
- A minimum of 700 gross estimated horizontal drilling locations targeting the Wolfcamp A, Wolfcamp B and Bone Spring, with meaningful upside potential through infill drilling and additional intervals.
- Proximity to other key Occidental development areas, such as Barilla Draw, allows for cost and infrastructure efficiencies and contiguous position enables longer lateral well development.
- Enables efficient development by gaining operatorship and provides capital flexibility as a high percentage of the acreage is held by production.
- Including this transaction, Occidental’s overall position in the leasehold area encompasses nearly 59,000 acres with an aggregate acquisition cost, inclusive of value given to current production and infrastructure, of approximately $2 billion.
- Acquired working interests in producing oil and gas CO2 floods and related EOR infrastructure, increasing Occidental’s ownership in several properties where it is currently the operator or an existing working interest partner.
- These properties have current production of approximately 4,000 BOE per day (80% oil), with estimated net proved developed producing reserves of approximately 25 million BOE and total proved reserves of approximately 41 million BOE.
Estimated valuations and activity going forward
Assuming $300MM and $245MM of value associated to the PDP value for the EOR and Delaware properties, respectively, said Seaport Global Securities analysts in a note Tuesday morning, it estimates the undeveloped Delaware acreage is $41.57K/acre. “We believe this is the second-highest price paid for Delaware acreage this year, trailing only the recent RSPP/Silver Hill deal, which was done at $46K-$50K/acre.”
Capital One Securities shows a different valuation. "We estimate OXY is paying $30K+/acre for the 35K net undeveloped acres acquired in Reeves & Pecos Counties based on assigning $350MM of value to the EOR properties that were acquired ($60K x 4Mboe/d + $100MM for infra) and ~$350MM value for the 7 Mboe/d production in the Delaware Basin," the company said in a midday note.
Going forward with the acquired Permian acreage, Capital One Securities continued, OXY expects to spend roughly $200 million next year "running 1 - 2 rigs and ~9 rigs total in the Permian with total company CAPEX planned in the $3.3B - $3.8B range vs ~$3.0B this year. We currently estimate $5.4B in operational cash flow next year based on $3.6B CAPEX and $50 WTI oil. Including the impact of the $2.0B cash payment for the Permian acquisitions, we estimate YE16 net debt/cap of 24% vs 16% previously and YE17 EV/EBITDA of 9.3x vs 9.2x previously."