US Upstream M&A Keeps Its Momentum in 3Q
After rebounding in second quarter of 2019, U.S. upstream mergers and acquisitions (M&A) activity maintained its momentum in third quarter, according to analysis released Wednesday by oil and gas data analytics company, Enverus.
Deals surpassed $17 billion in 3Q, nearly reaching the 2016-2018 historical quarterly average of $19 billion. It also marks more than $85 billion for M&A year-to-date.
“Most public E&Ps are highly limited in access to external capital right now,” Enverus senior M&A analyst Andrew Dittmar stated in an email sent to Rigzone. “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.”
Enverus identified the top 10 U.S. upstream deals of 3Q. They are:
- Hilcorp Energy Company purchases Alaska assets from BP, plc for $5.6B
- Callon Petroleum Company acquires Carrizo Oil & Gas, Inc. for $3.2B
- PDC Energy, Inc. acquires SRC Energy, Inc. for $1.7B
- Ecopetrol S.A. pays $1.5B to form joint venture with Occidental Petroleum Corp.
- Spur Energy Partners buys assets in the New Mexico Shelf from Concho Resources, Inc. for $925MM
- Viper Energy Partners LP acquires royalty interests from Diamondback Energy, Inc. for $700MM
- Osaka Gas Company Ltd. acquires Sabine Oil & Gas Corporation for $610MM
- Franco-Nevada Corporation and Lime Rock Resources acquires royalty interests from Range Resources Corporation for $600MM
- Crescent Point Energy Corp. sells its Uinta Basin assets to an undisclosed buyer for $525MM
- Colony Capital Inc. pays $320MM to form joint venture with California Resources Corporation
“There is a broad consensus that corporate consolidation is positive for the industry,” said 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.”
Enverus’ market research director John Spears said that private equity continued their strategy of “cautiously deploying capital on deals with significant cash flow.” He noted the recently announced deal of Roan Resources, Inc. being taken private by Citizen Energy Operating, LLC.
“We could see other small cap E&Ps with high debt and low share prices take similar buyout offers,” he said.
Enverus analysis predicts that in the fourth quarter of 2019, public companies will remain focused on keeping capital expenditures (CAPEX) in check while maintaining moderate production growth to deliver on free cash flow.
“Investors will likely closely watch as 2020 CAPEX guidance is rolled out to look for any inflation,” according to Enverus. “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.”
To contact the author, email Valerie.Jones@Rigzone.com
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