(Bloomberg) -- Texas oilman Jeffery Hildebrand became a billionaire by shunning the shale revolution taking place in his home state. Now, he’s making his biggest bet yet -- Alaska -- just as shale producers run out of steam.
Hildebrand’s Hilcorp Energy Co. is buying a collection of old wells and pipelines from BP Plc for $5.6 billion as the oil major chases fast-growing shale production that has transformed global energy markets over the past decade. Meanwhile, the Alaskan wells have been in decline for years.
“Hilcorp is somewhat uniquely following a counter-cyclical strategy, really going after these legacy assets that public companies are selling at pretty attractive price points,” Andrew Dittmar, a senior analyst at Enverus, said by phone. “They will generate cash flow for decades.”
It’s an unpopular strategy but one that has made Hilcorp the largest private producer in the U.S. and Hildebrand America’s 100th richest person with a fortune of $6.1 billion. And it may be particularly timely.
After attracting hundreds of billions of dollars of capital over the past 10 years, investors are beginning to sour on shale because of wells’ high decline rates.
Shale wells lose as much as 70% of their production in the first year, meaning that explorers have to constantly pour money into more drilling just to maintain production. By contrast, once up and running, conventional wells lose as little as 5% each year, providing a much more solid production outlook.
Just as important is the price: BP’s Alaskan assets were bought for just 3.8 times their annual cash flow, meaning Hilcorp may earn its money back within four years, according to Dittmar.
In the past five years, while everyone from Exxon Mobil Corp. to Concho Resources Inc. spent billions to get a slice of the shale boom, Hilcorp picked up assets in New Mexico, Wyoming and other oil properties in Alaska.
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