Asset sales

The global oil and natural gas industry experienced $137 billion in mergers and acquisitions in the first half of 2017.

Arecovering oil and natural gas industry has led to a boom in asset sales over the past year, making the industry more efficient and benefiting communities throughout the country, according to a report released this week by industry analyst firm Deloitte.

The global oil and natural gas industry experienced $137 billion in mergers and acquisitions in the first half of 2017, up 57 percent from $87 billion in the first half of 2016.

“One thing is that we’ve had some confidence returning that the worst of the downturn is behind us. We’re getting a growing confidence that there’s a recovery underway,” said Andrew Slaughter, executive director of the Deloitte Center for Energy Solutions.

“The second reason is that the recovery is not going to be a fast and steep recovery to a $100 (a barrel) world. That means there’s more incentive for exploration and production companies to look hard at their portfolio mix and make sure they work well together.”

Trimming the noncore fat

Much of the transaction activity in 2015 and the first half of 2016 involved larger companies buying financially distressed smaller companies either out of bankruptcy or to help them avoid bankruptcy. This year, however, the bulk of the transactions has been from companies selling noncore assets they don’t plan to drill anytime soon and instead buying assets that complement their existing activity, Slaughter said.

The reshuffling of assets can be beneficial to all stakeholders, including the companies, mineral owners and local governments, he said.

“If assets are acquired by a company with a natural advantage to owning those assets, either because it’s a bolt-on to an existing core or because it is a strategically strong area for that company, they are more likely to develop that acreage in a more sustained way than somebody who has it as a noncore part of a portfolio,” Slaughter said. “So it is helpful to sustaining both direct activity and supply-chain activity to have companies own assets that they are committed to develop.”

Mergers and acquisitions have been most heavily concentrated in the country’s most active fields. The Permian Basin in west Texas and southeast New Mexico led the way with $19.2 billion in deals in the first half of the year. The natural gasrich Marcellus and Utica plays in the Pennsylvania and Ohio areas saw $10.2 billion in deals, followed by the south Texas Eagle Ford at $4.7 billion.

Oklahoma’s STACK and SCOOP fields experienced about $900 million in deals in this first half of this year, down from about $2.8 billion in the last half of 2016.

Oklahoma’s wells have shown positive results, but the fields are relatively new and still largely unproven for modern drilling, Slaughter said.

“In general, it’s a less mature play than the other big unconventional plays,” he said. “I think it’s still at a stage where it will take some more time for the companies who are already there to figure out their best drilling program and operat- ing plan. As we get more information about what works best in that area, we could see a pickup in the M&A (merger and acquisition) and some basin entry.”

Prices and the broader picture

The biggest factor for the broader industry is the price of oil and natural gas, which has slipped throughout the first seven months of the year. The oil price has gained back some ground this week as Saudi Arabia said it will continue to cut production and as U.S. oil storage saw a larger-than-expected weekly decline.

Still, many analysts and executives have expressed concern that continued strong U.S. oil production could hold down global oil prices.

Slaughter said he expects prices and the broader industry to continue to recover.

“I’m not somebody who thinks we’re headed for another downturn,” he said. “I think the outlook is still broadly positive. It will be a slow recovery, but it is going in the right direction.”

Several of Oklahoma’s largest publicly traded oil and natural gas companies are scheduled to release their second-quarter earnings information next week in a move that likely will provide a better idea of what the local executives are seeing and expecting.

Houston-based Anadarko Petroleum this week said it is cutting its 2017 drilling budget by $300 million because of lower-than-expected commodity prices.

So far this year, Oklahoma companies seem to be in line with what Deloitte is seeing, with several companies in recent months announcing plans to sell noncore assets and touting deals to buy acreage and assets near where they already are operating.