Tanking up

Private equity is raising the ante in the Permian race. With a new initial public offering from TPG Capital on Friday, the industry has raised over $2 billion this year through blank-check entities to buy up energy assets. As Exxon Mobil and Shell shift their focus to west Texas acreage, these vehicles will have to be nimble to avoid a shakeout.

The special-purpose acquisition companies are designed to compete with the majors. They are led by oil and gas veterans who know about rolling up shale assets. TPG Pace Energy Holdings is run by Stephen Chazen, former chief executive of Occidental Petroleum. During a 20-year tenure, he built the company into the fourth-largest U.S. oil and gas company by market capitalization and the largest producer in the Permian. Riverstone Holdings’ Silver Run Acquisition II raised $1 billion in March. It’s boss is James Hackett, who ran Anadarko for nine years.

Although these blank-check vehicles have the ability to invest all over the world, west Texas has been the focus of late. The SPACs face plenty of deep-pocketed competition. Exxon invested $5.6 billion in the region in January, buying assets from the Bass Family. In March, Shell said it plans to increase its shale output, including in the Permian, by 140,000 barrels of oil equivalent a day by 2020. Last year, two blank-check vehicles bought assets in the Delaware Basin, the western part of the Permian. If overall investments in the Delaware region alone continue at their current pace, they’ll more than triple to $60 billion by the end of the year, and account for more than 60 percent of U.S. oil and gas merger activity, according to Drillinginfo.

The private equity-backed vehicles have the advantages of being small and cash-rich. That’s more important than ever as competition in the Permian heats up. Acquisition prices more than doubled in 2016 from the previous year, to $33,000 an acre, according to Drillinginfo. They’ve come off a touch so far this year, but special-purpose energy vehicles have already raised nearly four times as much in 2017 as last year. These companies had best move quickly while their checkbooks are flush.

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