October 2, 2019 - 12:57 PM EDT
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U.S. Oil & Gas M&A Maintains Momentum in Q3 Despite Challenging Environment for E&Ps

As the shale patch struggles to find buyers, conventional assets, corporate consolidation, and foreign buyers among factors driving activity

AUSTIN, TX, Oct. 02, 2019 (GLOBE NEWSWIRE) -- Enverus, the leading oil and gas SaaS and data analytics company, has released its summary of Q3 2019 deal activity and published a list of the Top 10 U.S. upstream M&A transactions. Despite a difficult market, M&A activity maintained the momentum established in Q2 surpassing $17 billion in Q3. That approaches the 2016-2018 historical quarterly average of $19 billion and puts year-to-date M&A at more than $85 billion.

“Most public E&Ps are highly limited in access to external capital right now,” said Enverus Senior M&A Analyst Andrew Dittmar. “Shale companies are turning to deals as another option in the toolbox to bridge the gap to free cash flow and hopefully shift market sentiment back in their favor. In contrast to prior years, where Permian asset deals dominated, we are seeing broad geographic diversity in the current market and a variety of deal types including joint ventures and royalties.”

Reaching into a region that has not often been at the forefront of deals, Hilcorp purchased BP’s Alaska business including its Prudhoe Bay and Trans Alaska Pipeline System interests for $5.6 billion in the largest deal of Q3. Since exiting an early investment in the Eagle Ford, privately held Hilcorp has been a countercyclical buyer of conventional assets. Meanwhile BP, a pioneer and major player in Alaska, is exiting to refocus U.S. operations on shale assets purchased from BHP.

The next largest Q3 transactions were a pair of corporate mergers. Early in the quarter, Callon Petroleum purchased Permian and Eagle Ford producer Carrizo Oil & Gas for $3.2 billion in an all equity/debt transaction. The deal has run into some investor opposition spearheaded by hedge fund Paulson & Co., who specifically cites the deal premium of 25%, and the addition of Eagle Ford assets to Callon’s Permian portfolio, as points of contention.

Dodging those issues and potentially setting the template for corporate consolidation, PDC Energy acquired fellow DJ Basin producer, SRC Energy, in a zero premium stock and debt deal for $1.7 billion. In a rarity for E&P deals in this market, both companies’ stock value moved up on the announcement as investors applauded the price and commitment to core DJ Basin operations.

“There is a broad consensus that corporate consolidation is positive for the industry,” added Dittmar. “While the benefits are there, getting the right deal in place is challenging. Companies that match up on asset fit are needed, as well as a low premium to avoid a buyer selloff. Conversely, targets have to be convinced on the long-term upside since an immediate payoff isn’t evident.”

Outside of corporate-level deals, there is very little buying from public companies. Private capital has partially stepped up, most significantly KKR-sponsored Spur Energy, which has deployed more than $1 billion including a $925 million acquisition from Concho targeting the New Mexico Shelf.

“Private equity looks to be largely sticking to their script from prior quarters and cautiously deploying capital on deals secured with significant cash flow,” commented Enverus Market Research Director John Spears. “There are ample opportunities. In a quick start to Q4, Oklahoma producer Roan Resources is being taken private by Citizen Energy, an affiliate of Warburg Pincus, for more than $1 billion consisting of ~77% debt assumption and ~23% cash to shareholders. We could see other small cap E&Ps with high debt and low share prices take similar buyout offers.”

While some public companies could announce all-stock acquisitions like Callon and PDC did in Q3, cash offers will likely need to come from the private market or the largest public companies, which still have substantial internally generated funds and high, investment grade credit ratings.

Low company and asset prices in the U.S. are also starting to draw interest from abroad. Japanese LNG importer Osaka Gas purchased East Texas gas producer Sabine Oil & Gas for a reported $610 million. A few days later, Colombia-based Ecopetrol signed a $1.5 billion joint development deal with Occidental targeting undeveloped acreage in the Midland Basin. While the Osaka deal was more narrowly tailored to source gas for LNG, the Ecopetrol JV shows that international companies view U.S. shale assets as competitive on a global basis. On a dollar-per-acre basis, the deal looks to have priced relatively in line with past Permian deal activity.

There were also a handful of Chapter 11 filings during 3Q19 including Halcon, Sanchez, and Alta Mesa. Thus far, the majority of Chapter 11 filings have ended in a recapitalization with creditors taking control of the company, but there could be a shift to more liquidations via bankruptcy sales processes as some lose patience and see companies going through multiple reorganizations.

Moving into the final quarter of 2019, public companies are likely to remain highly focused on keeping capex in check while maintaining moderate production growth to deliver on promised free cash flow. Investors will likely closely watch as 2020 capex guidance is rolled out to look for any inflation. Current company valuations show a strong investor preference for E&Ps with clean balance sheets and established capital returns from dividends or buybacks versus high growth. That may translate to little appetite for making acquisitions among most independent public E&Ps. 

Click Here for additional detail on Q3 2019 Oil & Gas M&A activity.

Members of the media may also request individual operator reports from Enverus’ recently released Operator Intelligence Suite. Please indicate the name(s) of the company or companies you are requesting.


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About Enverus

Enverus is the leading data, software, and insights company focused on the energy industry. Through its SaaS platform, Enverus provides innovative technologies and predictive/prescriptive analytics, empowering customers to navigate the future. Enverus’ solutions deliver value across upstream, midstream and downstream sectors, enabling the industry to be more collaborative, efficient and competitive. With more than 1,000 employees across the globe, the Company’s solutions are sold to more than 5,000 customers across 50 countries. Enverus is a portfolio company of Genstar Capital and brings together the technology of Drillinginfo, PLS, 1Derrick, MineralSoft, Midland Map Co., MarketView, DataGenic Group, PRT, Oildex, Cortex, Red Dog Systems and RigData as one company. Creating the future of energy together. Learn more at www.enverus.com.

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Jon Haubert
Enverus
3033965996
[email protected]

Source: GlobeNewswire (October 2, 2019 - 12:57 PM EDT)

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