Exxon Mobil subsidiary XTO Energy has agreed to sell oil and gas assets in the Freestone Trend area of East Texas to the Houston-based oil company Hilcorp Energy, according to notices it filed with the Texas Workforce Commission.
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The Freestone Trend area spans six counties: Freestone, Limestone, Robertson, Leon, Milam and Navarro. Exxon is selling XTO’s Freestone assets as it shifts its focus toward the most competitive assets in its portfolio, it said Wednesday in a statement. It agreed to sell around 2,800 active wells, gathering systems and treatment plants across 336,000 acres.
The Hilcorp deal, the terms of which were not disclosed, follows Exxon’s announcement this month that it would buy Pioneer Natural Resources for nearly $60 billion in a landmark deal that gives the Spring-based oil giant unrivaled production capacity in the Permian Basin of West Texas and New Mexico. Exxon said it was drawn to Pioneer’s precious reserves of top-quality shale in the Permian Basin, which is getting harder to access.
Roughly 135 employees could be laid off in December as part of the divestment, Exxon said in its letter to the Workforce Commission, noting it would “work as diligently as possible to place as many impacted employees supporting the assets with Hilcorp.” Employees not offered a job at Hilcorp would be offered a severance package, it said.
Hilcorp representatives did not respond to messages seeking comment.
Assets in the sale are largely conventional vertical wells, which have fallen out of favor with most companies since the shale revolution lured them elsewhere. Hilcorp is among a few companies whose business model is centered on buying declining conventional assets that companies such as Exxon leave behind when they move to more productive areas.
“It fits well with the business strategies of both of these companies, Hilcorp acquiring conventional acreage and Exxon selling nonfocus assets to focus on the Permian,” Rystad Senior Shale Analyst Matthew Bernstein said.
The Freestone assets produce mostly gas, Bernstein said, noting XTO’s production volumes appear to have peaked there in 2009 and have steadily declined in the years since. While horizontal wells can produce large volumes early and drop off steeply once they’ve peaked, vertical wells tend to have a long afterlife, making them still-worthwhile investments for Hilcorp, he said.
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