A private equity-backed U.S. oil company led by former Statoil executives has bought 18,000 acres in rural west Texas, the latest deal by investors snapping up land whose value has plunged along with crude prices.
Private equity, venture capital and other prospectors are betting that global demand for oil will eventually outstrip supply and lift prices from 12-year lows, making the land ripe for development.
Luxe Energy LLC, formed last year by Statoil alumni with $500 million in equity financing from NGP Energy Capital Management, planned to announce on Thursday that it bought the Delaware basin acreage from privately held Endeavor Energy Resources LP and Finley Resources Inc.
Financial terms were not disclosed, but a separate land purchase on Monday in the same area implied a valuation in the hundreds of millions of dollars.
Most of the land Luxe bought, which is in Reeves and Ward counties, is held by production, meaning Luxe does not need to immediately spend capital to maintain access. Oil companies are typically required under land contracts to pump a minimum amount of crude or lose the right to operate there in the future.
The land already produces about 1,000 barrels of oil equivalent per day (boe/d). Luxe declined to provide estimates of the total oil held in the acreage.
“This land is clearly worth a lot of money due to the quality of the rock,” Luxe Chief Executive Lance Langford told Reuters. “Low oil prices have created an opportunity for us to come in and buy a significant position in one of the top areas in one of the top basins in the United States.”
The land sits alongside the Pecos River in Texas, near 12,000 acres that Concho Resources Inc acquired on Monday for $360 million, roughly $30,000 an acre. The proximity bodes well for Luxe as Concho has a reputation in the oil industry for buying and running high-quality oil acreage.
Given the land’s proximity to developments by Concho and others, Luxe said it could also build pipelines through its new land.
Though mergers and acquisitions are largely frozen because of volatile oil prices and more firms are leaning toward restructurings, some smaller assets are being sold.
The Luxe deal follows recent land purchases by half a dozen or so private equity firms and other asset managers throughout the United States for oil and natural gas development. Sellers were seeking quick cash infusions to service debt and maintain core operations.
Recent PE and investment deals include Occidental Petroleum’s sale of North Dakota assets to Lime Rock Resources as well as Whiting Petroleum’s sale of some North Dakota assets to Foundation Energy Management LLC.
Luxe may have to wait some time to develop its new land as traders and economists do not expect oil to rise above $45 per barrel – considered the minimum level to turn a profit – until 2021.
The deal is Luxe’s first since it was formed last spring. In meetings in Houston, Austin and Midland, Luxe had sought to find quality Texas acreage that it thought had the best potential of earning the best returns should oil prices recover, Langford told Reuters last year.
The Permian is considered one of the most prolific oil producing regions in the United States. Luxe is focusing there and other parts of Texas as many of its executives are prohibited from operating in North Dakota, where Statoil has a large presence, due to non-compete clauses in employment contracts.