Occidental Petroleum Corp. (NYSE: OXY), the second-largest independent U.S. oil producer, is in talks to acquire closely held shale explorer Three Rivers Operating Co. II LLC, a person with knowledge of the transaction said, according to Bloomberg Dec. 22.
The company is discussing a price below $20,000 an acre for Three Rivers, said the person who asked not to be identified because the talks are private. Three Rivers owned drilling rights to 82,000 acres in the Permian Basin as of December 2013, according to its website.
Three Rivers, based in Austin, Texas, was formed in 2009 and is backed by energy buyout firm Riverstone Holdings LLC. Its management team is led by the former CFO of Mariner Energy Inc. and executives from Mobil Oil Corp., XTO Energy Inc. and Cimarex Energy Co. (NYSE: XEC).
Oil producers are ripe for takeover after a 48% plunge in crude prices in the past six months stressed the balance sheets of explorers that borrowed at steep rates to finance drilling and gain footholds in North American shale. Energy companies have been slashing capital budgets, firing staff and shifting rigs to the lowest-cost, least-risky fields to conserve cash, shield investor payouts and prop up returns.
The deal represents a strategic shift for Occidental, which earlier this month spun off its California business as part of a two-year effort to shed assets from the U.S. to the Persian Gulf. Acquiring Three Rivers will cement the Houston-based company’s dominance in the Permian Basin of West Texas and New Mexico, the most prolific American crude region.
CEO Stephen Chazen has made the Permian a cornerstone of Occidental’s growth plan. The company boosted oil and natural gas output from the region by 24% during the third quarter from a year earlier.
Occidental’s last significant acquisition was announced more than four years ago. The company bought some California oil fields from Rosetta Resources Inc. (NASDAQ: ROSE) for $200 million in April 2011, five months after agreeing to pay $1.8 billion for Royal Dutch Shell Plc’s (NYSE: RDS-A, RDS-B) South Texas gas assets.
James David, a Riverstone spokesman who works for the Kekst & Co. public relations company, declined to comment. Three Rivers’ president, Mike Wichterich, didn’t immediately respond to a telephone message left at his office.
Occidental fell 0.8% to $80.88 at 3:27 p.m. in New York. ConocoPhillips (NYSE: COP) is the largest U.S. oil producer by market value that doesn’t also operate refineries.
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