Speaking of this, we have to start from the US energy market at that time in 2013. at that time, the shale oil revolution was burning, and the American oil company was drilling everywhere like chicken blood, but the price of oil was rising, and many people were having a headache.
Pioneer Natural Resources, a company headquartered in Dallas, is a veteran player focusing on oil and gas development in the Permian Basin. The Permian Basin is the large basin in western Texas and New Mexico. There are many shale oil and gas resources hidden underground, but the mining cost is high and the technical requirements are strict.
Pioneer had a piece of land on hand at that time, about 207,000 acres, on the Wolfcamp Shale layer, which is what many people call the "desert".
On the surface, the wind and sand are heavy, there is little vegetation, and the early exploration data is not impressive. The company feels that this asset is lagging behind, especially when the price of shale oil has fallen and the debt is overwhelming.
Pioneer's CEO Scott Sheffield is a guy from the oil family, from small ears and eyes, graduated from the University of Texas geology, early years as an Amoco steam engineer, in 1997 his own team engaged Pioneer.
In the early years, the company made a little trick, bought some cheap rentals, slowly shifted to horizontal drilling and water power crushing these new technologies. By the 2010s, Pioneer's market value fell to tens of billions, but by the end of 2012, oil prices fell from more than $100 a barrel to more than 80 and debt piled to billions, and the board could not sit.
Sheffield and they evaluated the assets at hand, and this Wolfcamp lease became useless-the early production of vertical wells was low, and although horizontal well technology had potential, it was risky and there was fierce competition from the surrounding areas. Why don't we auction it and exchange it for some cash flow.
As soon as the news of the auction came out, the global energy circle paid attention. Norway's Statoil Company in Europe, Encana in Canada, and Santos in Australia all sent people to visit the site. The exploration team tested the formation with equipment and drilled shallow wells for sampling. Data feedback: poor permeability, discontinuous reservoir, many teams directly passed.
Pioneer himself invited a third-party geological company to evaluate and concluded that low-value assets were at most US$10,000 to US$15,000 per acre. Unexpectedly, Sinochem Petroleum USA LLC, the American subsidiary of China Sinochem Group, came out.
Sinochem is a state-owned enterprise with the highlight of the energy sector. It has long deployed oil and gas overseas and cooperated with Shell in Iraq in 2012. Their exploration team is different. They use equipment such as vibroseis vehicles, which can generate seismic waves to explore several kilometers underground and analyze reflected signals to determine the thickness of oil layers.
The Sinochem team measured on site for several days, and the data came out: Wolfcamp has a thick layer, high oil saturation and great potential. The team leader went back to Beijing to report, and the board of directors gritted its teeth and decided to make a heavy bet.
On January 30, 2013, at the Houston auction, neutralization representatives raised the bid, starting from 500 million and moving straight to the $1.7 billion threshold. This money was divided into two parts: 500 million cash paid at the moment, and the remaining $1.2 billion was divided into future drilling costs—75% neutralized until it was used.
Pioneer is so happy that the price is more than $17,000 per acre, far exceeding expectations. The contract was signed clearly: Sinochem takes 40% equity, Pioneer keeps 60%, and Pioneer continues to operate all drilling, completion, and marketing.
Sinochem not only buys land, but also helps Pioneer carry the drilling money, which is equivalent to giving Pioneer a blood transfusion. The deal accelerates the Wolfcamp development, with 86 wells planned to be drilled in 2013, 120 in 2014 and 165 in 2015, Sheffield said at a press conference. The market reacted enthusiastically, and Pioneer's stock price jumped 5% that day. Analysts boasted Sinochem's eye.
The transaction was officially closed on May 31st, after a U.S. anti-monopoly review, and it was not very difficult. On the closing day, the neutralization paid 6.3 billion in cash, of which 1.09 billion supplemented operating fees from the date of entry into force in December 2012.
The production of the Union Region at that time was almost 10,000 barrels of oil equivalent / day, and the neutralization was immediately divided into 40%.Pioneer operating team was not vacant, the drill turned, the horizontal well breathed down to a few kilometers, the crush injected, and the oil came out.
In the second half of 2013, the production of the first batch of wells exceeded expectations, with a daily output of several hundred barrels. Sinochem sends engineers to the site to learn technology and monitor rights and interests by the way. The whole process, according to American law, is a certainty, the property rights belong to the holders, and the underground resources follow suit.
Three years later, on November 17, 2016, the U.S. Geological Survey (USGS) released a report that exploded the pot. The report said that the Wolfcamp layer in the Midland basin of the Permian Basin had 20 billion barrels of crude oil, 16 trillion cubic feet of natural gas, and 1.6 billion barrels of liquid natural gas.
Based on the oil price of US$50/barrel at that time, the total value was US$900 billion, setting a record for a US shale oil field and three times larger than the Bakken oil field in North Dakota. The USGS used geological models and historical data to calculate that this land instantly transformed from a "desert" to a "gold mine".
The media swarmed to report that the CNN headline was "Giant Oilfield in Texas Desert", and the Wall Street Journal took stock of potential winners. Pioneer is of course the number one beneficiary. The value of their 60% equity has risen, and the company's market value has soared from 15 billion in 2013 to more than 20 billion in 2016.
Neutralization?Their 40% interest is directly valued at $3600 billion, the $1.7 billion investment has doubled by more than 200 times.In the early years, when the Neutralization purchased this land, it relied on advanced exploration equipment to catch the clue – controllable shock wheel is not white belt, shockwave data clearly shows the continuity of the oil layer is good.
Why didn’t other buyers keep up with it?Because they used the old equipment, unmeasured, or risk disgusted.Neutralize this game and go smoothly.After 2016, oil prices heated back to more than $60 and the drilling boom began again.
Pioneer accelerated its development, the output in the joint zone climbed from 10,000 barrels per day to tens of thousands of barrels, and Sinochem's dividends rose sharply. In 2017, the Pioneer report showed that Wolfcamp contributed more than 20% of the company's total production, controlled costs below US$30/barrel, and profits were high.
In 2022, the Russia-Ukraine conflict will push oil prices to US$120, and Pioneer's annual output will exceed 700,000 barrels per day, with Wolfcamp being the main force. Sinochem Equity has an annual revenue of tens of billions, helping the company withstand fluctuations in the chemical sector.
By 2023, the global energy transition will be loud, Pioneer will start carbon capture pilots, and Wolfcamp will install monitoring equipment to reduce methane emissions. Sheffield pushed a low-carbon path before retiring, saying Permian was compatible with green development. Sinochem also adjusted, the proportion of energy business decreased, and invested in new materials and life sciences.
On October 11, ExxonMobil announced the acquisition of Pioneer, the largest merger in the history of the oil industry, for $59.5 billion. On May 3, the closure, Exxon became Permian's boss, with a net 1.4 million acres and resources equivalent to 16 billion barrels of oil. Pioneer's Wolfcamp profits merged, and Exxon plans to produce 2 million barrels per day by 2027.
Sheffield stepped down as CEO, but was involved in the FTC review-referring to his coordinated production cuts with OPEC in the 2010s, suspected of antitrust. The FTC condition was that Exxon could not hire him for two years. He responded that it was a pure misunderstanding. The data proved that doubling production was a technical bull.
What about Sinochem? On August 30, 2024, Reuters broke the news that they planned to sell a 40% stake in Wolfcamp, with a valuation of over 2 billion. Looking for Barclays as an advisor, Exxon has the right of first refusal.
This chess, neutralizing the transition of DNA, the early year chairman Ning Gong Ning said to withdraw from oil and gas and invest in high-tech. 11 years ago, the interest from 10,000 barrels / day to 44,000 barrels, the return rate exploded.
Pioneer sells value, purchases neutral gambling technology, USGS evaluates, and everyone earns back. There is nothing forced to recover the code, all is the law of the market. Energy circle is like this, information is not asymmetrical is normal, who explores who wins.
Ioneer went from being in debt to being swallowed by Exxon and grew to the top of the chain; Sinochem went from an overseas novice to a major equity owner and withdrew. Wolfcamp, the "desert", produced hundreds of millions of barrels of oil in ten years, worth hundreds of billions, proving that the shale revolution is no joke. Permian production in the United States accounts for 10% of the world's total. China companies stepped in and learned real skills.