Author: Mark Young

Permian Basin sees US$30 billion of upstream M&A in just 6 months

Evaluate Energy’s latest M&A report shows that between the start of April and the end of September, the Permian Basin in the United States saw almost US$30 billion in new M&A deals announced for E&P assets.

“After a bumper quarter in Q2 that saw over US$18 billion in new deals agreed, Q3 saw just under US$12 billion of its own,” said Eoin Coyne, report author and Senior Analyst at Evaluate Energy.

The vast majority of this Q3 spend came from ConocoPhillips acquiring the Permian assets of Royal Dutch Shell for US$9.5 billion in cash.

“ConocoPhillips had already made a major move with the $13 billion acquisition of Concho Resources during Q4 2020,” said Coyne. “That was an all-stock deal, so ConocoPhillips retained enough liquidity to fund this latest transaction with available cash.”

The other ~US$2.5 billion in Permian deals this quarter included deals by Callon Petroleum, Lime Rock Resources and a royalty interest acquisition by Viper Energy Partners.

For more on these deals and other U.S., Canadian and global upstream M&A activity in Q3 2021, download Evaluate Energy’s latest M&A report at this link.

Top U.S. Upstream Deals in Q3 2021 (Permian deals in bold)

Eni, Shell lead oil producers in green energy deal making in 2021

Eni and Shell have been the most active among traditional oil and gas producers when it comes to green energy sector deal making in 2021, according to a new report from Evaluate Energy.

Over the past few years, intense and consistent investor pressure over carbon usage and climate goals has prompted many E&P companies to explore options in greener energy sectors and diversify their portfolios.

Evaluate Energy’s new report includes a rundown of every upstream deal in Q3 2021 and details on green energy investments by oil and gas producers. It is available for download at this link.

Eni’s busy third quarter is the reason for its position atop the rankings.

“Four of Eni’s six green energy deals were announced between July and September,” said Mark Young, report co-author and Senior Analyst at Evaluate Energy. “These latest investments will see the company acquire Italy’s second largest operator in the electric vehicle charging space, as well as increase its European wind and solar operational capacity by over 650MW.”

Shell joins Eni with six investments made up to September 30.

“Early activity from Shell this year was also mainly focused on European markets, but its two most recent investments have both been in the U.S.,” said Young. “These two U.S. deals included the acquisition of a renewable energy residential retailer and a sustainable fuels producer.”

Details on all of Q3’s major green energy investments by Eni, Shell and other upstream companies are available as part of Evaluate Energy’s latest M&A report.

Note for chart: “Other” includes deals in the following sectors, among others: Biomethane, Geothermal, Hydro, Retail power from renewable energy, Green energy-related technology.

Upstream M&A rises to $44 billion in Q3 2021

Evaluate Energy’s latest report shows that upstream M&A spending reached $44 billion around the world during Q3 based on deals announced between July and September.

This total is:

  • 23% higher than $36 billion in Q2; and
  • 25% higher than average quarterly spending over the past five years.

Spending was supported by strong prices for oil and gas.

“Oil demand increases reflected a resurgent global economy and a relative lack of supply from either the free market or OPEC+,” said Eoin Coyne, report author and Senior Oil & Gas Analyst at Evaluate Energy. “This led to an average WTI price in Q3 of $70.23, the highest quarterly average price since 2014. Natural gas saw an even more acute imbalance. Parts of Europe saw record natural gas prices and Henry Hub price averages in the U.S. hit $4.19, an increase of 47% on the average price in Q2.”

Despite the increase in deal value on previous quarters, the overall activity level was unchanged.

“What we refer to as ‘significant deal counts’ were identical in Q3 and Q2,” Coyne said. “Thirty-five deals were valued at greater than $50 million in both quarters. Larger corporate deals and higher valuations for asset deals due to increased oil and gas prices accounted for the overall higher deal value in Q3.”

Evaluate Energy’s M&A report for Q3 2021 includes analysis on the following:

  • Permian Basin deals involving Shell, ConocoPhillips, Callon Petroleum and more
  • Spartan Delta’s continued growth in Canada and a recent spike in royalty interest acquisitions involving Topaz Energy and PrairieSky
  • Multibillion-dollar deals affecting the natural gas industry in Australia and Brazil’s ultra-deepwater oilfields
  • Green energy sector deals involving Shell, BP, Eni and Galp

Oilsands majors accrue $7.8 billion in free cash flow in H1 2021

Canada’s oilsands majors continue to generate huge amounts of free cash flow in 2021.

Higher commodity prices in the first half of 2021, coupled with a slow return to pre-pandemic levels of capital spending, has resulted in operating cash flow significantly outweighing capital budgets for many producers across the U.S. and Canadian upstream sectors this year.

This is especially true in the Canadian oilsands, with Canadian Natural Resources, Cenovus Energy, Imperial Oil, MEG Energy and Suncor Energy recording a combined free cash flow of $7.8 billion in the first half of the year.

This analysis is part of a new Evaluate Energy report on key cash flow and capital management trends across the North American upstream sector. Access the report here.

While it is not unusual for oilsands producers to generate billions in free cash flow, these 2021 values remain highly significant. Only three financial quarters between the start of 2018 and the beginning of the pandemic in Q1 2020 saw values higher than the free cash flow recorded in either Q1 or Q2 2021.

Despite this recent high in free cash flow, the data also shows that capital spending has now recovered to pre-pandemic levels for the five producers.

These oilsands companies never deviated far from spending $2.5-$3.5 billion each quarter before the pandemic started in Q1 2020, and Q2 2021 was the first quarter of that magnitude since. This can actually be seen across the Canadian industry, with the other 37 Canadian producers in our report recording combined Q2 capex greater than averages seen prior to the pandemic.

Evaluate Energy’s Q2 2021 cash flow review for North American oil and gas producers is available now. The report includes analysis of dividend increases, capital budget levels and debt-related spending for 86 U.S. and Canadian oil and gas producers.

Canada’s top oil and gas operators of 2021

The 2021 Top Operators Report from the Daily Oil Bulletin looks back at how Canada’s oil and gas leaders pivoted to meet the challenges of 2020, and how they are positioning their organizations for future success.

Download the report here.

Once again, the report taps into the experience of professional services firm KPMG in Canada to provide insight into what strategies operators could pursue to thrive in the current environment.

The report also features a broad swath of the insights and opinions from industry leaders gleaned from Daily Oil Bulletin coverage, along with commentary from data providers Evaluate Energy and CanOils.

The following articles available via JWN Energy contain some of the key takeaways from the report:

 

Share buybacks will be key theme in second half of 2021

More and more oil and gas producers are releasing plans for major share buybacks after a bumper six-month period for free cash flow.

Buybacks are welcomed by investors as they tend to boost share prices in the short-term and improve per share benchmarks as the number of outstanding shares in the market is reduced.

Our analysis of North American producers showed that debt repayments and tidying balance sheets were key points of focus in Q1 2021 as free cash flow began to increase significantly after a dire 2020. The same trends can be seen globally.

Now that cash flow has been consistently high for longer, rewarding shareholders through share repurchases appears to be the next step for many producers, judging by the recent outpouring of buyback announcements we’ve seen accompanying oil company Q2 results around the world. Dividend increases are also expected across the industry.

Below, we have summarized buyback plans recently announced by some of the world’s largest oil and gas companies:

BP

The British supermajor intends to execute a share buyback of $1.4 billion before releasing its Q3 results. Based on the company’s current forecasts and pricing assumptions, BP expects to deliver buybacks of around $1 billion per quarter and have capacity for an annual increase in the dividend per ordinary share of around 4% on average through 2025.

Chevron

Chevron will resume share repurchases in Q3 at an expected rate of $2-3 billion per year. Chevron has completed share repurchases in 13 of the last 17 years, returning over $50 billion in total to shareholders.

ConocoPhillips

The company lowered its capital and adjusted operating cost guidance for 2021 and announced plans to increase 2021 share repurchases by $1 billion, bringing the total planned return of capital to shareholders to roughly $6 billion for the year.

Eni

Alongside a €0.86 per share dividend in Q3, the Italian major is set to buy back €400 million in shares by the end of the year.

Royal Dutch Shell

Having reduced net debt by $12 billion since Q2 2020, focus now shifts to shareholder distribution for Shell. The company has rebased its dividend to $0.24 per share, an increase of 38% from Q1 2021, and plans to buy back up to $2 billion of its shares before year-end. This represents an expected full year 2021 shareholder distribution of around 20-30% of operating cash flow.

TotalEnergies SE

The French company’s board of directors has decided to allocate up to 40% of any additional cash flow generated above $60 per barrel to share buybacks. The value of these repurchases for 2021 has been widely reported to be at least $800 million.

Evaluate Energy helps investors and industry observers track energy company capital management trends and quarterly cash flow results. Click the links to find out more about Evaluate Energy and Evaluate Energy Documents. All $ references above are US dollars.

Download our full review of Q1 cash flow trends for 86 producers from Canada and the United States here.

Upstream oil and gas M&A rises to $35 billion in Q2 2021

A series of high value mergers in the U.S. Permian Basin led to a sharp increase in global upstream deal value in Q2, according to Evaluate Energy’s latest quarterly M&A report.

“Between April and June, we saw $35 billion in new E&P deals agreed,” said Eoin Coyne, report co-author and senior M&A analyst. “This is eight times higher than the same time last year at the height of the pandemic, and a significant uptick on last quarter where $19 billion in new deals were agreed.”

The full report is available for free download here.

Coyne pointed to flat deal counts to illustrate the impact of a series of high value U.S. mergers (particularly in the Permian).

“Despite the sharp rise in deal value in Q2, what we refer to as ‘significant deal counts’ were remarkably similar to Q1 2021,” he said. Relative to Q1, Q2 saw just two more deals valued at over $100 million (for a total of 30), and the same number of deals valued at over $50 million and $10 million (36 and 54, respectively).

“Meanwhile, we saw $18 billion in new deals agreed in the Permian including deals by Cabot Oil & Gas and Pioneer Natural Resources, and eight deals in total in the U.S. with a value greater than $1 billion.”

For deal analysis in the U.S. and a summary of Q2 green energy deals by oil and gas producers, plus an overview of upstream M&A activity in Canada from Tourmaline Oil, Tamarack Valley Energy and Whitecap Resources, download the full Evaluate Energy report here.

Canadian oil producers buck North American cash flow trends in Q1 2021

Canada’s oil producers contradicted almost every key cash spending pattern across the North American oil and gas industry in Q1, despite enjoying the same increase in operating cash flow thanks to increasing commodity prices, according to new analysis from Evaluate Energy.

Below is a summary of how the 15 producers – which excludes any of Canada’s oilsands majors – bucked two of the key overarching industry trends identified in a new report, available to download here.

Trend #1: Free cash flow surges in Q1

The new report examines 86 U.S. and Canadian oil and gas producers. For most, the sudden injection of Q1 cash flow meant a major increase in free cash flow (the $ difference between operating cash flow and capital spending). The full group of 86 companies in Evaluate Energy’s report recorded a combined US$9.3 billion in free cash flow in Q1 2021, with capex only reaching 53% of operating cash flow. Average free cash flow for the group between 2018 and 2020 was just US$1.4 billion.

This heavily juxtaposes the behaviour of the 15 Canadian oil producers in that group of 86. For them, capex almost matched operating cash flow in two straight quarters following a recent free cash flow high of around C$500 million in Q3 2020. In Q1 2021, the two figures were a mere $43 million apart, meaning capital spending was at a level reaching 95% of operating cash flow in the quarter.

Trend #2: Debt repayment grows at expense of increasing capital spending

With capex increasing almost entirely in line with operating cash flow, the behaviour of Canadian oil producers related to debt repayment was completely different to the rest of the companies in Evaluate Energy’s report.

Comparing Q1 2020 and Q1 2021, the industry at large saw net debt repayments skyrocket to 39% of total cash outflow for the 86 companies as a group, having been around 6% just a year earlier. The rise in operating cash flow in early 2021 saw focus shift quickly to balance sheet repair rather than capital spending.

The 15 Canadian oil producers, however, saw debt repayment fall back in importance year-over-year to just 20% of total cash spending compared to 32% in Q1 2020. It is also worth noting that debt-related spending would still have fallen back in Q1 2021 to 29% of cash outflow even if Enerplus’ Q1 $529 million corporate acquisition-related cash spend had not taken place.

For more on Canada’s oil producers and company-by-company data, as well as the segmented cash flow trends for their U.S.-based counterparts, oilsands producing majors and North American gas-weighted producers, download Evaluate Energy’s cash flow report for Q1 2021 at this link.

How are North American oil and gas producers using their cash?

Early 2021 saw revenues and operating cash flow soar in the North American oil and gas industry.

A new report from Evaluate Energy studies how far this sudden cash injection changed spending habits for 86* U.S. and Canadian oil and gas producers. The full report – focused on cash used for capital spending, net debt repayments, dividends and more – is available for free download at this link.

Source: Evaluate Energy Cash Flow Review – Q1 2021

Major increase in free cash flow

A sharp rise in Q1 2021 revenues aided by improved commodity prices caused the greatest increase in positive ‘free cash flow’ – the $ difference between operating cash flow and capital expenditures – seen in years. This was caused by capital spending not keeping pace with the sharp rise in revenues.

Debt payments take greater priority

The group of 86 companies used this free cash flow to pay off a far greater amount of debt than has been typical. The report goes further and looks at the individual habits of each sub-group in the study:

  • The U.S. oil producer peer group recorded high free cash flow since Q3 2020. This is a complete turnaround for the group that had often recorded capital spending and operating cash flow of very similar amounts.
  • Canadian oilsands producers generated huge amounts of free cash flow, which is nothing new for the group. Canada’s other oil-weighted producers were the only group to see capex match the rise in operating cash flow, with behaviour that contradicts almost all cash spending patterns observed in the wider industry.
  • U.S. and Canadian gas-heavy producers saw free cash flow suddenly appear in Q1 2021. The Canadian group’s past behaviour is more indicative of this being a temporary occurrence as these producers often operate with a ‘financing gap’ (where capex outweighs operating cash flow) as a group. The data does suggest a temporary occurrence for the U.S. group, too, but it is harder to be certain because the group has been slower to increase capex since the height of the pandemic.

For more details on how producers spent their cash in Q1 2021, as well as information on the results of specific companies included in each peer group, download the full report at this link.

Note

*The 86 companies in this report all fit the following criteria:

  • They produced over 5,000 boe/d in Q1 2021;
  • Their global production was more than 75% weighted towards North American assets; and,
  • They all have a December 31 financial year-end.

Key takeaways: Data-driven value creation in the oil and gas industry

A recent survey of industry professionals conducted by Evaluate Energy owners geoLOGIC systems ltd. in partnership with the Daily Oil Bulletin sought to gain a deeper understanding of how data is being used by oil and gas companies.

Detailed results and analysis are available in a new white paper available for free download here.

Some of the key takeaways of the survey, courtesy of Darrell Stonehouse at JWN Energy, are summarized below:


E&P – Cost efficiency is key

  • The survey results demonstrate that operators remain laser-focused on managing costs, improving project planning and ensuring capital is deployed where it can deliver the most immediate return.
  • E&P companies are also using data to identify large acquisitions and adjacent, bolt-on opportunities.

Oil Services – Business development is top priority

  • Oilfield services companies are more focused on business development as their primary requirement when using data.
  • The key ‘data goal’ for exploration and development-focused suppliers is operational efficiency to meet customer pricing demands.
  • Production-oriented suppliers, meanwhile, are focused more on using data to drive new business.

Vast majority of decision makers are using third party data across the industry

  • Nearly 70% of E&P data users incorporate some third-party data in their workflows, with one-third of data users almost always leveraging third-party data.
  • Oilfield service data users are slightly less likely to integrate third-party data into workflows, but the survey still showed that around 60% in this sector almost always use outside data to drive business decisions.

Find out more: