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it trades for at least $50 a barrel. That’s
made the region an oasis for energy com-
panies that have struggled ever since 2014,
when West Texas crude prices collapsed
from a peak of $107. In the years since,
prices have never come close to reaching
triple digits and have dipped as low as $26
a barrel.
So far this year, prices have generally
been on the upswing, and are up some
35% in 2019—to around $62 per barrel—
despite concerns that a continuing trade
war with China will slow demand. Still,
it’s hard to find a bull who thinks that oil
has reason to rise much more. “Short of a
real sustained geopolitical event—not the
periodic flashes that have been impacting
the markets—I don’t know that anybodyN THE LAST FRIDAY in April, War-
ren Buffett got a call from Brian
Moynihan, the CEO of Bank of
America, asking if he would back
Occidental Petroleum’s underdog
bid for rival oil driller Anadarko.
Two days later, Occidental CEO
Vicki Hollub was making the pitch
herself, having flown to Omaha to
appeal directly to the world’s most
famous investor. It took Buffett
only an hour to say yes.
That Sunday, the Berkshire Hathaway CEO promised $10 bil-
lion in financing to Occidental if Hollub could get the deal done.
There was, of course, one complicating factor: Anadarko had al-
ready pledged to sell itself to oil giant Chevron and would owe the
latter $1 billion if it broke their engagement. What followed was a
remarkable coup d’état in America’s own oil-soaked Emirate—the
famous Permian Basin that stretches 86,000 square miles from
Texas to New Mexico—and it all happened in hyperspeed.
Just a week and a half after Buffett and Hollub’s meeting, a bid-
ding war that had played out in daily headlines was over: Chev-
ron (No. 11 on this year’s Fortune 500) walked, and Occidental
(No. 167) announced it would buy Anadarko (No. 237) for a total
price tag of $57 billion including debt. It’s the largest U.S. oil and
gas merger in more than 20 years (since Exxon bought Mobil) and
would catapult the combined company into the Fortune 100 elite.
Buffett, in an interview discussing his investment, told CNBC, “It’s
a bet on oil prices over the long term more than anything else.” Yet
notably, what he didn’t say was whether he was betting on oil prices
to be higher. (He declined to comment to Fortune for this story.) “It’s
also a bet on the fact that the Permian Basin is what it’s cracked up
to be,” Buffett added during the TV segment, without elaborating.
Of course, what the Permian is—quite literally—cracked up to
be is one of the biggest oil reserves America has ever known. And
it has made the U.S. the top oil-producing country in the world. Its
thick shale deposits, hydraulically fractured and pumped for oil,
have attracted not only Chevron, Occidental, and Anadarko, but also
hundreds of other drillers, which have claimed a big chunk of West
Texas (as well as a corner of New Mexico). The “fracking” boom, as
it’s known, is responsible for pushing U.S. crude production to a
record of roughly 11 million barrels a day in 2018, surpassing Saudi
Arabia and Russia for the first time since the end of the Cold War.
As of the latest monthly data, the Permian alone produces more
crude per day than the United Arab Emirates, Canada, or Iran; by
next year, some expect it could also outpace Iraq, which would make
the southwestern region the fourth-largest oil producer in the world,
if it were its own country. “The Permian is the absolute 800-pound
gorilla for shale,” says Mike Morey, CIO of Integrity Viking Funds,
who runs a top-performing energy stock fund.
The Permian is also one of the cheapest places to drill for oil,
not only in the U.S., but in the world. Unlike costly deepwater and
offshore rigs, drillers can make money on Permian oil as long as
O
0
2
4
6
8
10
12 million barrels per dayUAE
IRAN
CANADA
IRAQ
SAUDI ARABIA
RUSSIA
U.S.
11.0
2000
AVERAGE DAILY CRUDE OIL PRODUCTION
2005 2010 2015 Õ18
SOURCE: EIA
OCCIDENTAL PETROLEUM BATTLE FOR THE BASIN FORTUNE 5 00
BARRELING AHEAD
Thanks to the shale “fracking” boom in the
Permian Basin, the U.S. now produces more
crude oil than either Russia or Saudi Arabia.