Author: Mark Young

Record-breaking productivity levels and low-cost production have seen the Permian Basin attract major M&A activity in the U.S. upstream sector.

In fact, following ExxonMobil’s $64.5 billion mega-deal to acquire Pioneer Natural Resources, Evaluate Energy data shows that the basin has now passed $400 billion in new deals agreed over the past decade.

For comparison, U.S. deals agreed without any Permian assets now account for $375 billion combined after Chevron’s own $60 billion mega-deal to acquire Hess Corp. was announced this week.

Deal values approach $100 billion in 2023 alone

Deals involving Permian assets account for 52% of all U.S. activity since the start of 2014 by value.

• ExxonMobil’s acquisition of Pioneer means that 2023 is a record year for Permian-related spending, with deal totals approaching $100 billion for the first time.
• The previous annual record in 2019 was also primarily down to one mega-deal that included Permian assets, when Occidental Petroleum won a bidding war with Chevron to acquire Anadarko Petroleum for around $55 billion.

Both years would have been below $40 billion in deals agreed without the two major deals boosting totals.

Production of over 6 million boe/d traded

The same ~900 deals that included Permian assets saw 6.1 million boe/d change hands since 2014*. This represents 40% of all U.S. production involved in M&A deals over the same timeframe.

We can attribute the large volumes traded in 2019 and 2023 to the Occidental/Anadarko (743,000 boe/d) and ExxonMobil/Pioneer (711,000 boe/d) deals, which alone comprise approximately half of the annual totals in those years.

Without those mega-deals, 2020 is arguably the “most active” year for Permian Basin M&A.

This was a year characterized by many mergers taking place across the U.S. for depressed values and low premiums.

Permian-related deals at this time included:

• ConocoPhillips acquiring Concho Resources for $13.3 billion
• Devon Energy acquiring WPX Energy for $5.7 billion
• Chevron acquiring Noble Energy for $13.0 billion (although DJ Basin assets were the focus for Chevron)

Permian unsurprisingly dominates the top 10 U.S. deals by value in the past 10 years

Source: Evaluate Energy M&A 

*Full production from all basins in any deal including Permian production is included in this total. This does not represent purely Permian basin production traded.

 

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

Q3 upstream oil and gas M&A spending was 34% below the five-year quarterly average and 42% down on Q2 with $21 billion in new deals announced.

Full deal details are available within Evaluate Energy’s M&A database. Click here for details.

Key Q3 observations

• Eight of the top 10 deals by value were oil-focused.
  • View the top 10 deals of Q3 at this link.
• Payback multiples remain low: median EBITDA multiples were 2.9x compared to 7x over the past decade.This indicates the market has little faith in the current high earnings environment continuing in the medium- to long-term.
• 78% of deal activity by value focused on U.S. and Canadian assets.
  • ExxonMobil agreed a $4.9 billion deal to acquire Denbury in the largest deal (more below).
  • Permian Resources Corp. will acquire Earthstone Energy for $4.5 billion to create a $14 billion premier Delaware Basin operator.
    • For more on the Permian Basin, click here for why Diamondback Energy’s CEO thinks M&A targets are getting tougher to find
  • Strathcona Resources acquired Pipestone Energy in Canada’s largest deal, valued at around C$1 billion.
• Approximately 400,000 boe/d changed hands; the lowest quarterly volume since Q2 2020.

While deal activity was down, prices were up

• WTI ($80.83) rose 10% on Q2 2023 levels
• Henry Hub gas prices ($2.50) rose 19% since Q2, although this represents the second lowest quarterly average since 2020

ExxonMobil secures carbon capture assets with Denbury

In many ways, Denbury’s oil and gas production in the Gulf Coast and Rocky Mountains regions represents a perfect bolt-on acquisition to ExxonMobil’s U.S. upstream portfolio.

While this remains Denbury’s predominant business, its extensive carbon capture infrastructure and future storage potential – currently reported at around 2 billion metric tonnes – is very attractive.

The $4.9 billion deal equates to an EBITDA multiple of nearly 8x – a sum far more in line with corporate mergers of years gone by that shows just how much value ExxonMobil attributes to this carbon capture asset base.

The deal will instantly improve ExxonMobil’s ESG rating and open up an extra revenue stream; the new U.S. Climate bill provides tax credits of $85 per tonne of carbon stored permanently or $60 per tonne of carbon used in enhanced oil recovery.

ExxonMobil followed the Denbury deal with two more carbon capture agreements:

• Extending a carbon capture technology collaboration with FuelCell Energy Inc. (July).
• Securing four licenses in the U.K.’s first carbon capture licensing round (September).

Top 10 deals by value – Other supermajors in low carbon or renewable sectors

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

The largest upstream deals of Q3 2023 were almost exclusively in the United States, where four of the five Q3 deals valued at over $1 billion took place.

While a major asset sale in Oman, LNG investments in Australia and corporate mergers in Africa, Canada and Europe also cracked the top 10 this quarter, the U.S. continues its long-term domination of the upstream M&A space.

In fact, Evaluate Energy data shows that 70% of Q3’s global upstream M&A spending was focused on U.S. assets.

Evaluate Energy’s full review of Q3 activity is available now. It includes more on these regional trends, detailed analysis of ExxonMobil’s acquisition of Denbury, and shows how recent activity stacks up against the past five years of deal-making.

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

Canada’s gas producers posted five-year highs in capital spending in Q1 2023, according to new analysis using Evaluate Energy’s cash flow data.

Canada’s 17 natural gas weighted producers posted a combined spend of over C$2 billion for the first time and seven of the group recorded individual five-year highs in spending.

The seven companies posting individual highs included the group’s largest two producers, ARC Resources and Tourmaline Oil, as well as several smaller producers including relative newcomer Kiwetinohk Energy.

Full details on the record spenders can be found below. Cash used for M&A activity is excluded.

An eighth member of the group, Paramount Resources, was just short (~C$200,000) of recording a similar record spend, as it focuses on drilling and completion operations in the Grande Prairie and Kaybob regions of Alberta.

These record spends could be seen across the North American oil and gas industry in Q1 2023. More details can be found here.

Evaluate Energy’s streamlined cash flow data, including detailed breakdowns of all uses and sources of cash, provide our users with a far clearer picture than ever before of how oil and gas producers use their cash as commodity prices change over time. Data points include capital expenditures, finance raised, debt repaid, assets sold or acquired, dividend payments and more. 

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

Share buybacks are having a major impact on investors in upstream North American oil and gas companies – and Evaluate Energy’s latest data has more than one way to identify who’s benefiting the most.

First, examine the sheer amount of dollars spent.

Investors welcome buybacks because share prices get a boost. Reviewing company cash usage – a calculation streamlined in our database – shows 87 U.S. and Canadian producers spent $53 billion on buybacks over the past 15 months.

More than 80% was spent by 33 oil-focused U.S. producers plus five Canadian oilsands operators. These groups include the largest producers in the study, with ConocoPhillips, Imperial Oil, CNRL, Suncor and Occidental among the biggest spenders.

Second, and perhaps more interestingly, we have improving per share metrics.

Operators of all sizes are buying back shares. Analyzing per share metrics identifies significant activity regardless of company size and cash outlay. If a company buys back shares, i.e. reduces the number of shares it has in-market, this has a direct positive impact on any metric that investors use to analyze performance on a per-share basis. Earnings or cash flow per share are popular examples.

A simple all-encompassing barometer for success for us here, therefore, is the percentage reduction in outstanding shares, a figure that directly impacts every single per-share metric.

By analyzing this data since January 2022, several smaller companies are highlighted.

The results reflect the extent of change in share volume within these smaller companies.

Appalachia-focused CNX Resources plus International Petroleum, Advantage Energy, ARC Resources and Enerplus – four Canadian companies not involved in oilsands – comprise five of the top seven companies when ranked by percentage reduction in outstanding shares.

This means these five producers were able to have the largest relative positive impact on their per share performance metrics than nearly every other producer in our group.

This is despite just $2.5 billion in buybacks combined over the entire 15-month period, proving that share buybacks of all sizes can have a significant impact when analyzing oil and gas company performance.

(All $ figures shown in US$)

Evaluate Energy’s streamlined cash flow data, including detailed breakdowns of all uses and sources of cash, provide our users with a far clearer picture than ever before of how oil and gas producers use their cash as commodity prices change over time. Data points include capital expenditures, finance raised, debt repaid, assets sold or acquired, dividend payments and more. 

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

North America’s oil and gas capital expenditure is at a five-year high despite significant cuts to operating cash flow caused by lower per barrel prices.

Evaluate Energy has created a study group of 87 U.S. and Canadian domestic-focused companies to examine quarterly changes in cash usage, a key barometer of how oil and gas companies feel about the present market and their confidence in the future.

Around $25 billion in capex was deployed in Q1 by these domestic producers excluding all M&A activity – the highest level of spending per quarter since 2018, and the tenth consecutive quarterly increase.

Evaluate Energy’s streamlined cash flow data helps uncover some of the key reasons why.

Free cash flow is still high

Producers have seen operating cash flow decrease significantly in recent months. Q1 2023 saw $42 billion generated by the study group – around $20 billion less than just under a year ago.

Despite this, U.S. and Canadian producers continue to increase exploration and development capital spending.

The fact is Q1 2023 was still a relatively bumper quarter for both operating and free cash flow – the difference between operating cash flow and capital expenditures.

Since the start of 2018:

• Only periods in 2022 saw higher operating cash flow than Q1 2023
• Free cash flow hovered around $17 billion. Pre-pandemic, no quarter even got close to hitting $10 billion.

Debt is not a factor

Importantly, company debt is largely under control. A deeper dive into the data illustrates this change over time.
For sure, debt was the focus in late 2020 and early 2021. As producers emerged from the pandemic, they tackled immediate debt problems and it’s less of a priority now.

• Debt was intensely tackled at 37% of all cash used in Q3 2021; the only quarter over five years where debt management outranked all other cash usage.
• The percentage of cash for debt dropped sharply to 16% in Q3 2022. It dropped below 10% in Q1 2023, the first time post-Covid.

Plenty of cash for dividends and buybacks too… for now

Q1 2023 saw 35% of all cash used for dividends and buybacks. This is slightly down on the quarterly average since Q3 2022, but way above the five-year average of 22%.

Capex is on the rise while dividends and buybacks absorb a substantial and sustained portion of cash.

Evidently, free cash flow is yet to hit levels where promises made over shareholder returns conflict with capital spending plans. There is clearly plenty of cash for both.

If operating cash flow continues to drop to the point that something must give, it would be interesting to see how producers react.

For now, though, there is no conflict. Producers are pressing on in a big way.

Evaluate Energy’s streamlined cash flow data, including detailed breakdowns of all uses and sources of cash, provide our users with a far clearer picture than ever before of how oil and gas producers use their cash as commodity prices change over time. Data points include capital expenditures, finance raised, debt repaid, assets sold or acquired, dividend payments and more. 

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

Private companies’ predominance in North American upstream M&A continued in Q4 2022 based on Evaluate Energy’s latest deal analysis.

Evaluate Energy’s new infographic shows that 81% of all global deal value – in an especially lacklustre quarter for dealmaking – was spent on North American assets, and that private companies were involved in the five highest-value U.S. and Canadian deals.

• The U.S. deals included the highest value Q4 deal worldwide that will see Continental Resources taken into private ownership, as well as acquisitions by Marathon Oil and Diamondback Energy.
• In Canada, the oilsands sector saw its first +$1 billion quarter in the post-pandemic era, fuelled by the $950 million acquisition of Greenfire Resources by M3-Brigade Acquisition III Corp.

“Acquisitions of private operators by public companies remain a key trend, in part due to a lack of appetite for oil and gas IPOs, which blocks a key monetization route for private operators,” said Eoin Coyne, senior M&A analyst. “Equally, private operators have been looking to monetize investments while oil and gas prices are relatively high.”

Evaluate Energy’s latest M&A infographic can be downloaded at this link.

Included within the infographic:

• More details on these private company deals
• Why global deal activity fell to record lows based on several metrics in Q4 and 2022 overall
• Evaluate Energy’s 2023 outlook for upstream M&A
• Regional breakdowns of all Q4 activity

 

 

The world’s largest E&P companies have been extremely active in selling assets this year according to analysis available in Evaluate Energy’s latest M&A infographic.

Evaluate Energy’s data shows that over $22 billion has been raised by oil and gas majors – public companies with an enterprise value of over $10 billion – since the start of 2022 by selling assets or stakes in their upstream portfolios.

“There have been 46 individual deals with majors selling assets since the start of the year across 17 countries, with a large number of assets sold to private equity buyers,” explains Eoin Coyne, Evaluate Energy’s Senior M&A Analyst.

While sales have been frequent, acquisitions have been thin on the ground.

“The current price environment is seemingly steering these producers towards sales and potentially furthering development of existing core assets and away from any kind of widespread acquisition activities,” said Coyne.

“Investment in renewable energy sectors has also been growing.”

Evaluate Energy’s Q3 infographic provides detailed information on asset sales by Repsol, ExxonMobil and Shell, among others.

High oil and gas prices continue to stifle market activity when it comes to E&P deal-making.

Evaluate Energy’s latest infographic focuses on upstream M&A in Q2 2022 – and is available to download free here. It details a total of $22 billion in new deals; albeit, the second consecutive quarter with historically modest activity levels.

“Q2’s $22 billion is an uptick over last quarter but 35% down on the five-year average total per quarter, with high prices the primary driver,” said Eoin Coyne, senior analyst at Evaluate Energy. “As we saw in Q1, buyers seem unwilling to make deals at top-of-the-market prices, while sellers have little impetus to part with assets contributing to healthy profits unless a strong offer is made.”

The infographic expands on these and other external pressures that may be hindering activity, while also providing information on:

• All the major Q2 deals
• The largest U.S. merger of 2022
• The active role now taken by private companies
• Canada’s most active quarter of deal-making since Covid-19 hit
• Activity in Qatar related to the single largest LNG project in history