Argus Media: Shale M&A to gather pace in hunt for inventory

Merger and acquisition activity might not match the size of the Permian shale oil deals by Exxon and Chevron, but companies are hunting.

Story By Stephen Cunningham |Argus Media| Future merger and acquisition activity may not be able to match the size of the deals that saw ExxonMobil snap up Permian giant Pioneer Natural Resources for $59.5bn and Chevron acquire Hess for $53bn, but that does not mean the impetus for action will be any less intense. “There is a healthy pressure for continued consolidation where companies that are big enough to be attractive to the major players are certainly being eyed as targets,” law firm Baker Botts partner Preston Bernhisel says. “And oil companies at the next level are at least considering growth acquisitions to get to that level of being a potential target.”

Top of the list of potential targets are the biggest remaining closely held producers in the shale patch, Mewbourne Oil, Endeavor Energy Resources and CrownRock — which have been the subject of perennial takeover speculation over the years, but whose time may have finally come.

Mewbourne Oil, established in 1965, is one of the leading private producers in the Permian Basin. The company operates more than 2,100 wells in Texas, Oklahoma, and New Mexico, according to its website. Company founder Curtis Mewbourne died last year but the firm has not signaled any intention to sell up.

Endeavor has an asset position of almost 350,000 net acres in the Midland subsection of the top-performing Permian. It is owned by billionaire founder Autry Stephens, who drilled his first well back in 1979.

CrownRock, a joint venture between private equity firm Lime Rock Partners and oil and gas company CrownQuest Operating, started in 2007 and now has about 94,000 net acres in the core of the Midland.

While the Permian will likely remain the center of future deal-making, other regions such as the Anadarko and Eagle Ford are also coming to the fore as valuations become more expensive in the top-producing US shale play. Following on from its recent initial public offering, Mach Natural Resources this week snapped up oil and gas interests in Oklahoma for $815mn from private equity firm EnCap Investments-backed Paloma Partners IV.

READ NEXT: Chevron reviewing options for East Texas assets after shale acquisitions

Still looking for the C-Suite spot

Chief executives at publicly traded shale producers welcomed the latest round of consolidation on recent earnings calls and took the opportunity to set out their own approach to mergers and acquisitions. Devon Energy is going to have a “high bar, be very disciplined, be very thoughtful, and make sure we can sell that to shareholders,” chief executive Rick Muncrief said in relation to any potential deals.

Diamondback Energy sees its role firmly as that of a buyer. “While we recognize size and scale are being rewarded by the public markets, we have to get better when we get bigger,” Diamondback chief executive Travis Stice says. Marathon Oil chief executive Lee Tillman told analysts that it is “our duty to always explore avenues to further enhance the long-term value for our shareholders”, but he insisted the company “will not be compromised” in its approach.

It was left to ConocoPhillips chief executive Ryan Lance to inject a note of caution. Recent industry transactions were announced during a part of the cycle that is a “little frothy” and probably at a “higher mid-cycle price than we would ascribe to them”, he said. Occidental Petroleum was an early consolidator in the shale patch when it beat out Chevron for Anadarko Petroleum in a $38bn blockbuster deal in 2019. “The good thing is we don’t have to do acquisitions now,” Occidental chief executive Vicki Hollub told analysts.

READ NOW: List grows of firms, including Devon Energy, interested in acquisition of CrownRock operations in Permian Basin

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