Oil and gas companies continue to merge frequently in 2021 and the trend continued early this year with operations focused on the Permian Basin in southeastern New Mexico and western Texas.
Most recently, Desert Peak Minerals and Falcon Minerals Corporation announced a $1.9 billion merger on Jan. 12, with the combined company focusing 73% of its oil operations in the Permian.
Company officials also touted a “significant” position in the Eagle Ford Basin in South Texas.
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In total, the deal resulted in a net acreage of 139,000 acres, including 105,000 in the Permian, which is expected to produce up to 14,500 barrels of oil equivalent per day in the first half of 2022.
Based in Denver, the new company will be managed by Desert Peak and its shareholders will own 73% of the new company while Falcon will own 27%.
Following the transaction, the company will have 20 wells which are expected to be productive over the next year, and Desert Peak CEO Chris Conoscenti said the focus on the Permian will boost profits in the prolific region. and profitable for oil production.
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“We believe ownership of Permian minerals and royalties is moving toward larger scale and more efficient institutional ownership,” he said. “Our strategy is to be the primary consolidator of these high-quality Permian assets.
“We believe our scale is a clear strategic advantage in the minerals business, as we are able to reduce fixed costs per unit of production with each acquisition, thereby improving our cash margins.”
Falcon CEO Bryan Gunderson said consolidating assets through the merger could help insulate the company from fossil fuel market volatility while increasing the scale of operations.
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“As we have previously communicated to our shareholders, we believe that scale is important in the minerals sector because it improves the ability to drive greater consolidation, improves access to capital and reduces the volatility caused by concentration of assets,” Gunderson said.
“We are proud of the business our management team and employees have built, and we are excited to partner with Desert Peak to provide our shareholders with a significant increase in scale and exposure to a broad base. and diversified portfolio of prime assets in the Permian Basin. ”
Increase in oil and gas mergers reported in 2021 amid COVID-19 recovery
The Desert Peak-Falcon merger followed a string of similar deals in 2021 as the market recovered from the COVID-19 health crisis and companies sought fiscal discipline and maximized returns rather than ramping up production. of oil and gas.
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Global energy analytics firm Enverus reported that mergers and acquisitions in the upstream sector of the oil and gas supply chain increased 25% last year to a total value of $66 billion.
This growth was approaching the annual average of $72 billion recorded between 2015 and 2019, but was struggling to overcome pre-pandemic levels, the report said, due to continued market uncertainty created by the pandemic.
Between the third and fourth quarters of 2021, Enverus reported that the value of mergers fell by 50%.
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Andrew Dittmar, director of Enverus, said the rises and falls in value were driven by fewer but more impactful deals as the companies sought to shore up their assets by combining private exploration and production companies ( E&P).
Before the pandemic, Dittmar said the market averaged 400 mergers and acquisitions per year, but reported 172 and 179 in 2020 and 2021, respectively.
“Since the emergence of COVID, upstream M&A has been characterized by fewer but larger deals,” Dittmar said. In 2020, this took the form of public companies consolidating among themselves and in 2021, they focused on the deployment of private E&P.
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The top five deals in the final months of 2021 reached a value of around $6.6 billion, with two of the top five based in the Delaware Basin – the western Permian sub-basin in southeastern New Brunswick. Mexico.
The main transaction in the fourth quarter of last year was Continental Resources’ takeover of the Permian assets of Pioneer Natural Resources for approximately $3.3 billion on November 3, followed by a $604 million merger between Earthstone Energy and Permian-based Chisholm Energy on December 16.
Other major transactions were in the Haynesville Basin in southeastern Arkansas, Louisiana and eastern Texas, as well as the Midcontinent Basin, which spans several southwestern and northern states. west-central United States.
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Together, Enverus said the Permian and Haynesville regions accounted for about 80% of fourth-quarter deal value, with Delaware primarily focused on oil and Haynesville leading natural gas deals.
Baker Hughes reports that the two leading producing regions along with Haynesville and the Permian reported oil and gas rig counts with 52 and 293, respectively.
New Mexico and Texas retained their top spots among oil and gas producing states, with New Mexico holding steady last week at 95 rigs and Texas adding seven for a total of 281 on Friday, according to the latest data from Baker Hughes.
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The rigs’ growth followed a rise over the weekend in the price of domestic oil, with the Chicago Mercantile Exchange reporting above pre-pandemic levels at around $84 a barrel.
Dittmar said the Permian and Haynesville regions were characterized by heavy past investment from private companies who are now looking to sell the assets to boost their revenue.
“Buyers have been largely focused on adding high-quality inventory to build their track and maintain the strong cash flow generation recently achieved,” Dittmar said.
“The largest supply of inventory meeting buyers’ criteria is available for sale in Delaware for oil and Haynesville for gas. This is largely because both of these coins have received significant private investment in previous years that sponsors are now looking to monetize through sales to a public company.
Adrian Hedden can be reached at 575-618-7631, [email protected] or @AdrianHedden on Twitter.