BY CONTINUING TO USE THIS SITE, YOU ARE AGREEING TO OUR USE OF COOKIES. REVIEW OUR PRIVACY & COOKIE NOTICE
X


Upstream North American M&A activity likely to pick up in second half of year: analysts

Houston (Platts)--16 Apr 2018 457 pm EDT/2057 GMT


Merger and acquisition activity among North American exploration-and-production companies will likely pick up in the second half of 2018, with most of the deals involving the buying and selling of asset packages in onshore basins that have not seen that much activity in recent months, according to industry observers.

"We definitely will be seeing an increase," Mangesh Hirve, chief operating officer of 1Derrick, an energy database and consulting firm, said in an interview.

Much of the upstream M&A this year will take place outside of the Permian Basin, which has been the hotbed of deal-making in recent years, Hirve said. "In the Permian Basin, most of the land grab is already done," he said.

With oil prices expected to rebound in the second half of the year, US producing basins outside of the Permian are expected to see renewed investor interest and a pickup in deal-making, he said.

Article continues below...


Request a complimentary issue of: Energy EconomistEnergy Economist
Energy Economist

Every month Energy Economist combines incisive judgments and detailed data sets that deliver ideas you can profit by. It includes coverage of:

  • Political and economic risk
  • Supply and demand
  • Policy and regulation
  • Liberalization and market design
  • Supply security
Request Free IssueRequest More Information


"At $70/b oil, the Eagle Ford is profitable. SCOOP is already profitable at $60/b," Hirve said. He added that these basins likely would see a flurry of M&A activity similar to that in the Permian two years ago, which he characterized as "Permania."

Many of these transactions likely will involve smaller asset transactions, in the $100 million to $500 million range, as companies seek to right-size their asset portfolios and consolidate their asset positions in their core operating areas, Hirve said.

The biggest M&A transaction in the first quarter of 2018 was the purchase by Concho Resources of rival Permian producer RSP Permian for $9.5 billion, which represented the biggest US E&P corporate deal since 2012 and the largest-ever Permian Basin transaction.

That deal is expected to add about 92,000 net acres to Concho's existing acreage position in the Permian for a combined position covering more than 640,000 net acres. In the fourth quarter of 2017, production by RSP's assets totaled roughly 55,500 b/d of oil equivalent, of which about 80% was crude and 20% natural gas.

Two other M&A deals in the quarter topped $1 billion: the acquisition by privately funded TPC Pace Energy of EnerVest's assets in the Eagle Ford Shale for $2.66 billion in March, and the purchase by private equity funded Admiral Permian of the Delaware Basin acreage owned Riverstone-backed Three Rivers Operating III, in a deal valued at $1.15 billion, according to a recent 1Derrick report.

'LARGE CHUNKY TRANSACTIONS' TO DRIVE TOTAL VALUE

Although a few company mergers could have a big impact on the total value of M&A upstream activity in 2018, Hirve said he believes the biggest driver in the dollar value of M&A deals in the coming year will be the number of "large chunky transactions," that take place in the range of $500 million to $1 billion.

Paul Harvey, managing director of S&P Global Ratings, said it is too early to predict the M&A trends that will take place in the rest of 2018.

"I think we see the potential for M&A, although we are not assuming anything. The Concho acquisition of RSP speaks to what could happen," he said. He added, however, that it is unlikely that there will be another Permian deal of the same size, as an acquisition of an entire Permian company would be very expensive and out of reach for all but the biggest players.

However, as was the case with the Concho-RSP deal, Harvey said future M&A activity is most likely to take place among smaller E&P companies that are showing high rates of growth. Many of these players are backed by private equity financing, particularly those whose production profile is weighted toward gas rather than crude.

"Private equity has been there," he said. "It's shown up in some acquisitions on the gas side in the last couple of years."

There are still good deals to be made involving the buying and selling of assets among private equity-backed entities and Harvey said this form of M&A is likely to be more common in 2018 than corporate mergers.

There also will continue to be a number of transactions involving producers trading around their asset positions, for example producers acquiring acreage contiguous to their own to enable them to drill longer laterals. "Those have been going on for a while," Harvey said.

--Jim Magill, jim.magill@spglobal.com

--Edited by Keiron Greenhalgh, newsdesk@spglobal.com



Related News & Analysis


Video archives Commodities Spotlight podcast archive News features The Barrel blog

Related Products and Events


Gas Daily Platts Conferences and Events

Copyright © 2018 S&P Global Platts, a division of S&P Global. All rights reserved.