Oil, gas deal surge likely in coming months
U.S. oil and gas acquisitions should surge in the second half of the year following a spring lull, with upwards of $50 billion in new deals anticipated as more companies aim to grow in Texas shale, according to a new report.
With most of the land in the booming Permian Basin already snapped up and oil hovering just below $75 a barrel, companies that want to expand in the West Texas oil field will have to make deals to acquire other companies, the report said. International oil companies looking to grow in the U.S. and private equity firms hoping to cash in on rising crude have billions to spend, said Austin-based Drillinginfo, a leading oil and gas research and analytics firm.
The next round of mergers and acquisitions is expected to be led by Australia’s BHP Billiton, which is selling its roughly $10 billion portfolio in shale oil and gas assets in Texas, Arkansas and Louisiana, the report said. BHP has large holdings in both the Permian and the Eagle Ford shale in South Texas.
Potential buyers include Royal Dutch Shell and the California oil major Chevron, but BP is thought to be the front-runner, Drillinginfo said. The British energy giant is seeking a large foothold in Texas shale to compete with Chevron and Exxon Mobil, which last year acquired the Permian holdings of the Bass family of Fort Worth for up to $6.6 billion.
BP has largely shrunk since the 2010 Deepwater Horizon tragedy, which killed 11 workers, spilled nearly 4 million barrels of oil into the Gulf of Mexico off Louisiana, and cost the company billions of dollars to settle claims. BP, however, is looking to grow again, said Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis.
“BP is looking to jump-start their shale story,” he said. “They weren’t in position the last few years to really do anything until now.”
BP declined to comment
Tuesday.
Drillinginfo said mergers and acquisition in the oil and gas industry were valued at $30 billion in first six months of this year, compared with $45 billion in the first half of 2017. M&A activity in the hot Permian market cooled considerably, slipping to just $800 million in the second quarter, the lowest since $437 million in during the same period in 2015, when the oil bust was still unfolding.
Rising profits and higher oil prices are expected to bring new life to negotiations and potential deals, especially in shale plays throughout the country, Drillinginfo said.
“We expect the logjam in quality asset packages to begin to move quickly in the second half of 2018 as the sub-$50 oil price risk is largely over,” said Drillinginfo senior director Brian Lidsky. “These are exciting times and buyers have plenty of choices to rapidly deploy capital.”
Apart from Midlandbased Concho Resources buying rival RSP Permian for about $8 billion, the first six months of 2018 have been relatively quiet in dealmaking. During this lull, many companies heeded the wishes of Wall Street and their investors, focusing on improving the efficiencies of their existing operations, and returning more profits to their shareholders through increased dividend payouts, share repurchasing programs and debt reduction.
Anadarko Petroleum Corp. of The Woodlands continued that approach this week, saying it would spend an additional $1.5 billion to repurchase shares and cut debt. Anadarko will put another $1 billion in its share repurchase program, which is designed in part to boost the value of its stock, after recently completing a $3 billion share repurchase effort at the end of June. The company also will pay off about $500 million of its debt.
With oil prices rising, big mergers and acquisitions could still be slow to develop because potential sellers are asking for more money and they’re less financially stressed. In the case of BHP, the Australian mining company took a big hit during the recent oil bust, writing down the value of its shale assets by $7 billion two years ago. It now considers the shale game too risky when weighed against its traditional mining holdings.
BHP bought into U.S. shale in 2011 with its acquisition of the Houston oil company Petrohawk Energy for about $15 billion, including debt, and Fayetteville shale acreage from Oklahoma City’s Chesapeake Energy for $5 billion.