Aug. 08–The booming Permian Basin continues to reshape the Texas oil and gas industry, driving two more multibillion-dollar deals as local energy companies and investors move to cash in on producing, transporting and exporting the flood of crude and natural gas from West Texas.
The Houston company Occidental Petroleum said Wednesday it would sell its oil exporting terminal near Corpus Christi and a West Texas pipeline network to two private equity-backed firms for $2.6 billion as Occidental intensifies its focus on producing oil and gas from its extensive holdings in the Permian. Houston’sApache Corp., meanwhile, said it is forming a partnership with a California investment firm to spin off its Permian pipeline holdings into a new company with a projected market value of $3.5 billion.
The deals show how thoroughly the Permian, which covers some 75,000 square miles in West Texas and eastern New Mexico, is dominating activity as the energy industry rebounds from last oil bust. The world’s biggest oil companies, including Exxon Mobil and Chevron, are pouring billions of dollars into the shale play; firms are racing to build pipelines to move record production of oil and natural gas to Gulf Coast and export markets; private equity and other financial players are increasing their bets on all aspects of the Permian phenomenon.
Case in point: The export terminal and pipelines that the private equity-backed companies will buy from Occidental will primarily handle Permian crude.
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“West Texas is the new Rome,” said Ethan Bellamy, an energy analyst at Robert W. Baird & Co. “All roads in the energy empire lead to the Permian Basin.”
The Permian accounts for just under one-third of U.S. oil production that is approaching 11 million barrels day, just shy of the output of the world’s top producer, Russia. Occidental is easily one of the Permian’s top producers, pumping oil from recently-developed shale reservoirs as well as older sections of the basin, where Occidental uses a process known as enhanced oil recovery that injects carbon dioxide into the ground to force crude out of aging wells.
The company, nicknamed Oxy, is selling its export terminal at Ingleside on Corpus Christi Bay to Moda Midstream and its Centurion pipeline system, which extends from the Permian to the Cushing, Okla. storage and transportation hub, to Lotus Midstream. Both companies, headquartered near Houston, are backed by the San Antonio private equity firm EnCap Flatrock Midstream.
“We are excited to have the opportunity to continue building on Occidental’s vision of the Ingleside Energy Center as a premier export terminal in the U.S. Gulf Coast,” said Moda CEO Bo McCall. “We see enormous growth potential.”
Occidental, which acquired the terminal in 2012 for $82 million, has been investing heavily to expand the terminal to accommodate larger volumes of oil — up to 750,000 barrels a day — and the biggest crude tankers. U.S. crude exports have grown quickly since Congress ended a 40-year ban in late 2015, reaching about 3 million barrels a day. About three-fourths of American crude destined for foreign markets moves through Texas ports, according to the U.S. Energy Department.
But as Occidental has increased its focus on oil and gas production in the Permian, it has been selling international and domestic assets in recent years. In an interview before the terminal and pipeline deals, Oxy Chief Executive Vicki Hollub underscored her company’s commitment to the Permian.
“The Permian is now the foundation and the growth of our company,” Hollub said. “The bulk of our growth capital will continue to go to the Permian Resources business.”
Bellamy said it makes sense for Occidental to unload the terminal and pipelines now since the demand for transportation from the Permian producers puts a premium on these type of facilities. A shortage of pipeline capacity has made it difficult for producers to deliver their oil and gas, and forced them to sell at significant discounts.
The Centurion pipeline system is a large network of almost 3,000 miles of crude oil gathering and mainline transportation pipelines extending from southeast New Mexico and across West Texas to Oklahoma. The system includes storage terminals in Midland and Cushing.
“Texas oil production growth and producers clamoring for more infrastructure make this a great time for Oxy to sell,” Bellamy said.
The demand for space on Permian pipelines is so great and has become so valuable that Apache is spinning off its pipeline holdings into a new public company, called Altus Midstream, with a projected stock market value of $3.5 billion. Apache’s partner, Kayne Anderson Acquisition Group of Los Angeles, will pay nearly $1 billion in cash for 29 percent stake in the new company.
The deal would allow Apache to focus on developing its Alpine High shale play, which holds an estimated 15 billion barrels of oil and gas in the southern part of the Permian Basin, while holding a majority stake in Altus, which has the potential to grow and buy stakes in five major pipeline projects from the Permian. Altus, headquartered in Houston, would control natural gas processing facilities, 178 miles of gathering and processed gas pipelines, and connections to multiple markets.
“This frees us up … and puts us in the spot we want to be,” Apache CEO John Christmann said in a conference call. “We’re going to have a lot more flexibility now.”
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