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Noble Buys Clayton for $2.7 Billion to Expand in Permian

  • Will have second-largest position in Southern Delaware Basin
  • Deal provides 4,200 drilling locations on about 120,000 acres

Noble Energy Inc. agreed to buy Clayton Williams Energy Inc. for $2.7 billion in stock and cash to expand in America’s hottest shale play.

The combination will create the second-largest acreage position in the Southern Delaware Basin of the Permian shale formation, Houston-based Noble said in a statement Monday. The deal provides more than 4,200 drilling locations on about 120,000 net acres, with resources of more than 2 billion barrels of oil equivalent, Noble said. 

The Permian has been a hot spot for deals because it’s one of the few areas in the world where producers managed to make a profit during the downturn. Noble had long coveted the Clayton Williams assets because of their high oil content and the overlap with its own properties. The deal gives the company a large base in both the Permian and in the D-J basin shale plays in the Rocky Mountains region, said Robert Morris, a Citigroup Inc. analyst in New York.

The acquisition “resolves a key investor concern -- the depth of Noble’s inventory," Morris said in a research note on Tuesday. “Noble now holds over 2 billion barrels of resource potential in two of the most economic oil plays in North America – the D-J and Delaware Basins."

Noble shares jumped 6 percent to $39.62 in New York trading at 10:27 a.m., their biggest intraday increase in six weeks. Clayton Williams climbed as much as 40 percent to $42.02, for its biggest gain in 19 years.

Core’s Core

“From all our technical work, we’ve identified this area as the core of the core,” David Stover, Noble’s chairman and chief executive officer, said in a telephone interview. “This acreage has been at the top of the list.”

Many of the wells are economical with oil at around $40 a barrel, Stover said. With crude trading in the $50-to-$60 range, which Stover considers a sustainable level, Noble can fund the operations with its cash flow. In addition to the productivity of the properties, Noble’s distribution assets in the area will help keep costs low, he said.

Crude prices rallied last year thanks to OPEC-led talks to ease a global supply glut, and have traded mostly above $50 a barrel since a final accord was reached to cut production at the end of November. West Texas Intermediate gained 1.3 percent to $53.04 a barrel at 10:10 a.m. in New York.

Selling Assets

Noble will probably sell other assets to help fund development in the Permian and retire debt it’s taking on from Clayton Williams, Timothy Rezvan, a Mizhuo Securities USA analyst in New York, said in a note to clients Tuesday. Projects in the eastern Mediterranean Sea and the Marcellus shale gas play in the U.S. seem likely targets, along with 100,000 “non-core" acres the company is picking up from Williams, Rezvan wrote.

Shareholders of Clayton Williams, based in Midland, Texas, will receive 2.7874 shares of Noble’s common stock and $34.75 for each share of common stock held, totaling 55 million shares and $665 million in cash, Noble said. In addition, the deal includes the assumption of about $500 million in net debt.

Noble plans to increase production on the acquired assets to about 60,000 barrels of oil equivalent a day by 2020, from about 10,000 currently, according to the statement.

The cash portion of the acquisition will be financed through a $4 billion revolving credit facility. The company expects to retire Clayton Williams’s outstanding debt. The deal will provide Noble with about $75 million in annual cost savings.

— With assistance by Alex Nussbaum

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