In a release sent to Rigzone, Enverus Intelligence Research (EIR) revealed that U.S. upstream M&A activity “notched its third consecutive quarter of heightened value with more than $30 billion transacted”.
“That brings year to date activity, including July deals, to nearly $90 billion and nearly $250 billion transacted in the last 12 months,” the company said in the release, adding that, “prior to the latest run of consolidation, quarterly M&A value had only topped $30 billion three times since the start of 2017”.
EIR noted in the release that M&A value in the second quarter was heavily weighted toward one large transaction, with ConocoPhillips acquiring Marathon for $22.5 billion. EIR highlighted in the release that the transaction is the fifth largest U.S. upstream deal of the last decade and described it as “another historic name exiting the E&P space, as Marathon Oil has roots that reach back more than 100 years”.
The rest of the top five deals during the quarter comprised SM Energy and Northern Oil & Gas’ deal with XCL Resources for $2.55 billion, Crescent Energy’s deal with SilverBow Resources for $2.10 billion, Matador Resources’ deal with Ameredev II for $1.90 billion, and TXO Partners’ deal with EMEP and Kaiser-Francis Oil for $298 million, the release outlined.
“M&A momentum carried into the second quarter as pressure built on companies like ConocoPhillips, Devon Energy and SM Energy, that had previously stayed out of the market to keep pace with peers and grow in scale,” Andrew Dittmar, Principal Analyst at EIR, said in the release.
“In the case of ConocoPhillips and Devon Energy, running out of inventory doesn’t appear to be as high a concern, but there is still a perception that successfully navigating the maturing phase of shale requires building resource base with M&A,” he added.
“The increasing cost of buying drilling inventory, particularly in the Permian, has been the main story in upstream M&A throughout 2024,” Dittmar continued.
“With the highest quality inventory selling at premium pricing, there has been a scramble for middle-tier inventory that provides strong returns even if it isn’t as economic as core Permian assets,” he went on to state.
In the release, EIR noted that an advantage of buying in plays like the Eagle Ford and Williston Basin is the ability to capitalize on the potential of older horizontal wells by recompleting them with what the industry terms refracs.
In its investor materials, ConocoPhillips in particular highlighted refrac potential in its Marathon Oil acquired assets, and Devon Energy called out 300 refrac candidates, EIR said in the release, adding that the opportunity to revisit older wells is something companies are paying increasing attention to, both within their existing assets and when evaluating deal opportunities.
“Companies are also looking for opportunities to expand their inventory base by testing new zones,” EIR stated in the release.
“Besides high prices in the Permian, SM Energy made a move into Utah’s underdeveloped Uinta Basin with its purchase of XCL Resources because the company feels it can develop new productive intervals and expand the resource base to justify its entry price,” it added.
EIR noted in the release that a rising tide of inventory prices has lifted all boats for private sellers, which it said have capitalized on the market to divest more than $100 billion of assets to public companies since the start of 2022.
“Among private equity firms, EnCap Investments has led the way with roughly $20 billion divested since then, including selling nearly $10 billion in portfolio companies since the start of June,” EIR stated.
“Other top sellers during that time include Lime Rock, which invested in CrownRock, NGP Energy Capital and Quantum Energy Partners. The collection of companies, which are all energy specialist investment firms, reflect changes in the private equity landscape in oil and gas as large, generalist firms have pulled back,” it added.
“An extremely strong market has also tempted long-held family companies like Endeavor Energy Resources, which contributed $26 billion to total private sales, to exit. An outstanding question in the industry is if more family-owned companies, specifically Mewbourne Oil which now holds the deepest bench of privately owned Permian locations following the sale of Endeavor, will also be tempted into the market,” it continued.
“A sales process by Mewbourne Oil would likely draw attention from all large companies active in the Delaware, potentially including even EOG Resources which has not made a significant acquisition since it last purchased private, family-owned Yates Petroleum in the Delaware Basin in 2016,” it went on to state.
There is still room for private equity companies to divest more portfolio companies, particularly in the Eagle Ford and SCOOP/STACK plays, EIR said in the release.
“Verdun Oil, backed by EnCap, and WildFire Energy, sponsored by Kayne Anderson plus Warburg Pincus, would be two likely sellers in the Eagle Ford,” it added.
“Companies are also likely waiting on a rally in natural gas prices to divest more portfolio companies focused on that commodity,” it continued.
In a release sent to Rigzone back in April, EIR said, “following last year’s blockbuster $192 billion in U.S. upstream consolidation, 1Q24 would be on track to surpass that record with $51 billion in announced deals”.
“However, EIR is pumping the brakes on another record-setting year as deal activity has slowed significantly in March and Q2 appears to have already lost momentum,” EIR added at the time.
In that release, Dittmar stated that “deals at the start of 2024 were driven by the same factors that led to last year’s marathon of mergers, foremost among them a desire to lock up high-quality inventory when it is available”.
“Most of that inventory is going to be found in the Permian, so it is unsurprising the prolific basin was yet again the primary driver for M&A within oil and gas,” he added.
Headlining consolidation in Q1 was privately held Endeavor Energy Resources’ sale to publicly held Diamondback Energy, EIR noted in that release, adding that the $26 billion buyout was the largest sale of a private company Enverus has tracked.
In a release sent to Rigzone in July last year, EIR revealed that, in the second quarter of 2023, U.S. upstream M&A “boomed with $24 billion transacted in 20 deals with the Permian returning to its usual position as the center of M&A activity”.
“One notable exception to this Permian-centric quarter was Chevron’s purchase of primarily DJ-focused producer PDC Energy for $7.6 billion, though PDC also has a footprint in the Delaware Basin,” EIR highlighted in that release.
“That deal helped drive a remarkable $1.2 billion average size for deals with a disclosed value in Q2, more than double the average Q1 deal,” it continued.
Source: www.rigzone.com
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
- Energies Media Staffhttps://energiesmedia.com/author/oilmanwp/
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