By Bradley Olson

Exxon Mobil Corp. is the latest company to expand in the red-hot Permian Basin in Texas and New Mexico, announcing a deal Tuesday to buy companies owned by the Bass family for $5.6 billion in stock and up to $1 billion in additional payments.

Once a dominant player in the region, Exxon is joining other oil firms in a race to build up drilling portfolios in West Texas and New Mexico. Even as crude prices hover slightly above $50 a barrel, about half the level of three years ago, the value of land in the Permian basin has skyrocketed to records amid a flurry of land buying as companies gear up for a rebound.

With the purchase, newly installed Exxon Chairman and Chief Executive Darren Woods will nearly double the oil and gas the company holds in the area to the equivalent of 6 billion barrels, the company said. While Exxon had among the largest positions in the Permian basin before the deal, it was far smaller than that of peers including Chevron Corp. and Occidental Petroleum Corp.

The Exxon deal brings acquisitions in the area to more than $10 billion in just the past week. On Monday Noble Energy Inc. said it would pay $2.7 billion to buy West Texas producer Clayton Williams Energy Inc.

Exxon paid about $23,500 an acre including potential future payments, according to Jefferies & Co., about 25% less than the average price paid in the past six months. Exxon's ability to use shares in treasury to buy assets may be attractive to sellers based on potential tax advantages, according to Jefferies analysts.

The string of deals, which analysts expect will continue, shows the extent to which U.S. companies are betting on Texas as they seek to return to growth after more than two years of shrinking amid falling prices.

Crude began to stabilize above $50 a barrel after the Organization of the Petroleum Exporting Countries elected to cut output late last year. Many U.S. drillers have begun to put rigs back to work in recent months, particularly in West Texas. U.S. oil was roughly flat on Tuesday, closing at $52.48.

Exxon is buying companies owned by the Bass family, which is closely associated with Fort Worth, Texas, and whose fortune was built by legendary wildcatter Sid Richardson, including mammoth discoveries in West Texas that date to the 1930s and 1940s. In the past 15 years, the family has sold off much of what remained of the empire Mr. Richardson amassed.

The operations, which include the operating entity Bopco, cover about 275,000 acres and may hold as much as 3.4 billion barrels of oil and gas, according to Exxon, which highlighted a "highly prolific, oil-prone" section in New Mexico.

The company plans to use the position to drill longer horizontal wells, a technique many have adopted in the crash and that reduces costs by extending the reach of drilling operations.

"We can drill the longest wells in the Permian basin, reducing development costs and increasing reserve capture," Mr. Woods said. He took over the helm at Exxon on Jan. 1 after predecessor Rex Tillerson was nominated to become President-elect Donald Trump's secretary of state.

Companies have been paying never-before-seen levels for drillable acres in the Permian Basin. Players in the region say land there has layers of oil-bearing rock stacked on top of each other and hold substantial reserves that can be tapped in tandem, making each acre more valuable than in atypical oil field.

Some in the industry have voiced concerns that the high prices indicate a bubble is building up in the area. More than a dozen people who responded to survey questions posed recently by the Federal Reserve Bank of Dallas said they believed the acreage was overvalued.

"The Permian transactions are approaching price multiples associated with a bubble or a Ponzi scheme," one respondent wrote.

--Austen Hufford contributed to this article.

Write to Bradley Olson at Bradley.Olson@wsj.com

(END) Dow Jones Newswires

January 17, 2017 17:37 ET (22:37 GMT)

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