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hang on as the region’s top producer. That’s
why it, too, had been coveting Anadarko—
and indeed had been in talks with the com-
pany over a potential deal for almost two
years. When Chevron announced its agree-
ment to purchase Anadarko in mid-April
for $50 billion including debt, Occidental
found itself between tight rock and a hard
place: If it wanted Anadarko, it would have
to somehow break up the Chevron deal
and cover its billion-dollar dowry.
In the Permian Basin, there’s virtually
no risk of wasting money on “dry” wells
because everyone knows that oil is in that
“tight rock,” as the shale formations are
known. The proximity to the Gulf Coast
also makes it convenient for companies to
get the crude to market—especially now
with new pipelines opening up. “This isneer who is now a portfolio manager for Guinness Atkinson.
The irony is, the good ole days for the oil patch weren’t exactly
that. Even when oil was $100 a barrel a few years ago, companies
weren’t as profitable as they should have been, says Waghorn. In
those heady days, and until last year, U.S. oil and gas exploration
and production companies paid out more on capital expenditures
and dividends than they had in cash flow, according to Morgan
Stanley—and S&P 500 energy stocks have been consistent under-
performers since the start of the shale oil revolution. “If we were
looking into your crystal ball at this supernova birth [of shale] in
the U.S., I think you would have surmised that these stocks would
have done exceedingly well, but they haven’t,” says Bill Herbert,
managing director and senior research analyst at Simmons Energy,
the oil and gas investment banking arm of Piper Jaffray.
For years, the sector burned so many investors that many aban-
doned it. But the Occidental deal may have reignited interest. It’s
funny what $10 billion from Warren Buffett will do.
W
HICH BRINGS US BACK to Occidental’s all-in, table-clearing
bid for Anadarko, and the hunt for scale in the Perm-
ian. In the past few months, Occidental nudged past
the much-larger Chevron to become the top Permian
oil producer, but it was going to be hard to stay there: Chevron was
rapidly upping its Permian ambitions, and had recently promised to
grow its production there 53% by 2020.
That’s why Chevron wanted Anadarko, too. The notion of mar-
riage between the two oil producers promised some unique advan-
tages: The parcels each company controls in the Permian run along
the old Texas & Pacific rail line, meaning a merger would have
united the land like a massive checkerboard, lowering costs further.
Rival Occidental would be boxed out.
On its own, Occidental would likely find it nearly impossible to
OCCIDENTAL PETROLEUM BATTLE FOR THE BASIN
A TEXAS-SIZE GUSHER
Oil workers are all business in Midland, Texas, the heart of the Permian
Basin, where many U.S. oil companies are doubling down.BATTLING FOR THE BASIN
Once it absorbs Anadarko, Occidental is likely
to have a comfortable production lead in the
Permian Basin.