Noble Energy Inc. (NYSE: NBL) agreed to buy Clayton Williams Energy Inc. for $2.7 billion in stock and cash to expand in America’s hottest shale play.

The combination will create the second-largest acreage position in the Southern Delaware Basin of the Permian shale formation, Houston-based Noble said in a statement. The deal provides more than 4,200 drilling locations on about 120,000 net acres, with resources of more than 2 billion barrels of oil equivalent, Noble said.

The Permian has been a hot spot for deals because it’s one of the few areas in the world where producers managed to make a profit during the downturn. For example, PDC Energy is buying two companies from Kimmeridge. The Clayton Williams assets had been a coveted acquisition target for Noble because of the overlap and proximity to its own properties and their high oil content, said David Stover, chairman and chief executive officer of Noble.

“From all our technical work, we’ve identified this area as the core of the core,” Stover said in a telephone interview. “This acreage has been at the top of the list.”

Many of the wells are economical with oil at around $40 a barrel, Stover said. With crude trading in the $50-to-$60 range, which Stover considers a sustainable level, Noble can fund the operations with its cash flow. In addition to the productivity of the properties, Noble’s distribution assets in the area will help keep costs low, he said.

Crude prices rallied in 2016 thanks to OPEC-led talks to ease a global supply glut, and have traded mostly above $50 a barrel since a final accord was reached to cut production at the end of November.

Shareholders of Clayton Williams, based in Midland, Texas, will receive 2.7874 shares of Noble’s common stock and $34.75 for each share of common stock held, totaling 55 million shares and $665 million in cash, Noble said. In addition, the deal includes the assumption of about $500 million in net debt. Noble plans to increase production on the acquired assets to about 60,000 barrels of oil equivalent a day by 2020, from about 10,000 currently.

The cash portion of the acquisition will be financed through a $4 billion revolving credit facility, from which Noble hadn’t drawn any funds as of the end of last year. The company expects to retire Clayton Williams’s outstanding debt. The deal will provide Noble with about $75 million in annual cost savings.

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