A Slick Move in the Oil Field

 | Jun 10, 2014 | 11:44 AM EDT
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The most aggressive man in the oil business is back, and he's bigger than ever. That's the only conclusion I can reach about Aubrey McClendon, who announced $4.25 billion in acquisitions yesterday, including $2.5 billion for 63,000 acres in the Permian Basin.

You should remember McClendon as the man who built Chesapeake Energy (CHK) into a natural gas powerhouse and then tried aggressively to reinvent the company as an oil company with a series of moves that didn't pan out. He was then replaced as CEO by board members who felt he had too many things going on away from Chesapeake and that his record had become too mixed to keep him.

I know McClendon as a visionary who, above all others, knew that we could have so much natural gas in this country that it could be a game changer. Plus, he knew where the fields were; he was the first to recognize that the Utica, in Ohio, could be a gigantic source of energy.

Ever since McClendon set up American Energy Partners, people have been throwing money at him, and the company now has a war chest of cash and debt that is worth roughly $10 billion. McClendon is right back in Utica and Marcellus shelling out $1.75 billion for some natural gas fields that seem plentiful.

But it's the Permian Basin that has gotten my attention. McClendon is buying his acreage with a very high price tag: $156,000 per flowing barrel, according to reports about the transaction. New horizontal drilling technology has given this 100-year-old field a second life. Still, this is remarkable sum to pay and it reminds us that the Permian Basin is pure gold for a bunch of companies.

The most linked to the Permian is Pioneer Natural Resources (PXD). Its CEO, Scott Sheffield, famously has claimed that his acreage sits on top of a field that's the second biggest in the world (the biggest is in Saudi Arabia). When I first heard this projection, I have to admit I found it pretty laughable given all of the oil fields in the Middle East of substantial size and how the Permian's been played out over time.

However, when I see this kind of activity by McClendon, who is universally known as a shrewd accumulator of properties I have to wonder just how much more Pioneer, which is currently valued at $31 billion, might be worth. I often talk about EOG Resources (EOG) because it is so leveraged to this field, Eagle Ford and the Bakken. But Apache (APA) and Occidental  Petroleum (OXY) have some terrific acreage, too. I think McClendon's deal revaluates all of these stocks higher.

Why would he be paying so much for fields that are producing so much oil that they can't get it all to market -- and when they do, there's a considerable discount given the Permian glut? Simple: There are a series of pipelines being opened up in the next year that could end that glut and give all of the players a much higher price than they are currently fetching.

I continue to believe that the value of the North American oil stocks will keep going higher. And with problems in so many large oil producing countries in the world -- whether it be in Iraq and Libya with their shaky governments or in Nigeria with its unrest, or Brazil with its empty coffers -- the Permian Basin still looks like a pretty darned good place to do business.

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