Big Oil’s Message to Permian Strugglers: We Won’t Bail You Out

Big Oil probably won’t be buying up the Permian Basin’s struggling independent drillers any time soon.

Years of costly exploration and frantic buying sprees have gutted shareholder returns in the world’s largest shale basin. And management teams and their financial backers can’t count on shale-hungry, cash-rich supermajors to buy them out.

Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and ConocoPhillips are all on record saying they are wary of scooping up smaller rivals at a time when would-be sellers are demanding premium payouts and global crude prices are under pressure from ample supplies.

There is “not always alignment among buyers and sellers,” Exxon Chief Executive Officer Darren Woods said Wednesday. He suggested Permian drillers may have to be squeezed by weak prices for a bit longer before they dial down their expectations.

“That’s often the case in a market, particularly in one that’s in transition,” Woods said.

Conoco CEO Ryan Lance has a similar view. There are “a lot of bid-ask issues sitting in the market today,” he said on May 23. “Expectations change” is what’s needed to stoke acquisition activity.

Shell has been on the hunt to bulk up in the Permian for some months but has yet to seal a deal. The Anglo-Dutch major was said to be in talks with privately-owned producer Endeavor Energy Resources LP in January.

Chevron walked away from buying Anadarko Petroleum Corp. earlier this month after being outbid by Occidental Petroleum Corp. “We’re serious about being disciplined,” Chevron CEO Mike Wirth said.

Occidental may have ended up with a winner’s curse. Carl Icahn, the billionaire investor, sued Occidental on Thursday for its “fundamentally misguided and hugely overpriced” bid for Anadarko.