The Permian is Ripe for M&A
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The Permian is Ripe for M&A

Now that the dust on the Chevron-Occidental-Anadarko acquisition battle has settled – with Occidental emerging victorious after help from Warren Buffet – the question on industry lips is: what, or who, is next? Emerging as a collection of bootstrapped pioneers and ambitious independents, the emerging profile of the onshore basin has attracted the attention of supermajors in recent years. While the likes of Chevron and ExxonMobil have acquired some acreage organically, the choicest parts and assets are in the hands of smaller players. When Chevron first announced its deal for Anadarko, it was thought of that that would kick off an acquisition bonanza. That might still happen.

Generating a lot of talk is Endeavor Energy Resources. With a huge 350,000 acres position in the Permian’s Midland Basin, Endeavor is the largest private company in the area. Chatter in the market suggest that Shell might make an official move for Endeavor soon for US$8 billion, and it’s easy to see why. Much of Endeavor’s drilling rights is mostly undeveloped; while that means that Shell can’t hit the ground running with an acquisition, it has long-term attraction considering the high depletion rate observed in Permian fields. Shell itself is reportedly on the prowl for expansion in the Permian, having largely finished its asset rationalisation programme after the US$61 billion takeover of the BG Group and the fact that it majorly lags behind rivals ExxonMobil and Chevron in the space.

Next is Diamondback Energy, a Permian pure-play firm that has valuable assets in the Midland Basin as well as the prized (and prolific) Delaware Basin. Diamondback’s asset map covers 200,000 acres – including several tracts that are contiguous with ExxonMobil and Chevron’s current acreage in the Delaware. Also worth considering is Concho Resources, another Permian pure-play with large acreages scattered across the Midland and Delaware Basins. The largest of these are adjacent to Occidental’s own areas, so it would not be a surprise if Occidental gears up appetite for another buy.

But right on top of the list of Pioneer Natural Resources. Although its CEO has recently stated that Pioneer is not for sale, things might change with the right price. With Pioneer having sold off the last of its remaining assets in Eagle Ford shale, Pioneer is now a Permian pure-play, it has over 785,000 acres in the Midland Basin. Although less prolific than the Delaware, the Midland Basin is still attractive and Pioneer’s position is particularly concentrated and contiguous. Brushing up against Pioneer’s acreage is ExxonMobil and Chevron’s own boundaries, and its new status as a Permian pure-play makes Pioneer particularly attractive for integration compared to the complex and global portfolio of Anadarko. Of course, this doesn’t preclude the scenario where Pioneer itself goes on a shopping spree. With cash on hand at US$1.4 billion and net profits for 2018 at US$1 billion, it might have to borrow to buy, but the long-term dividends might be worth it.

Other names popping up on potential acquisition lists include Parsley Energy, Centennial Resource Development, EOG Resources, Noble Energy and Apache – the latter three having expansion ambitions of their own. The list of potential suitors for these jewels is long. Besides the ambitious duo of ExxonMobil and Chevron, as well as the new interest from Shell, there is also BP (which bought BHP’s Permian assets last year), ConocoPhillips and US independents Devon Energy, Marathon Oil and Encana. Interest could also come from further afield, with chatter suggesting interest from Chinese, Malaysian and even Thai players. In fact, the only major players that have largely ruled out running to the Permian are France’s Total and Italy’s Eni, both of which are concentrating on the high potential of their African assets. The race for the Permian is on and in three years, the corporate landscape there will look very much different

Top Permian basin acquisition targets:

  • Pioneer Natural Resources – 785,000 acres (Midland Basin-focused)
  • Endeavor Energy Resources – 350,000 acres (Midland Basin-focused)
  • Diamondback Energy – 200,000 acres (Midland/Delaware Basin)
  • Concho Resources – 1 million acres (Midland/Delaware Basin)

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Ronald A Sprague

President - RockWhisperer Consulting LLC

5 年

Been shouting this for 2 yeas now...

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