Focus on Texas shale fields prompts deals
ConocoPhillips sells assets in Australia; Parsley buys a rival
The Houston oil and gas company ConocoPhillips will sell most of its Australia business for $1.4 billion to better focus on North American shale plays, while Austin’s Parsley Energy is buying a competitor for nearly $1.7 billion to build a bigger player in West Texas’ Permian Basin.
The deals follow two recent industry trends. The biggest oil and gas companies, such as ConocoPhillips, are selling international assets to focus on North American operations, the Permian and other oil fields. Meanwhile, midsize Permian players such as Parsley are consolidating to better compete with the big companies that increasingly dominate the region. Parsley is buying Denver-based Jagged Peak Energy in an all-stock deal to expand its footprint in the Permian’s more active western lobe, the Delaware Basin, near the New Mexico border. Jagged Peak is backed by a controlling shareholder, the Houston private equity firm Quantum Energy Partners, which is supporting the deal.
“The inevitable consolidation
in the Permian has started and Jagged Peak made a decisive move to team up with the right partner,” said Quantum Chief Executive Wil VanLoh.
While a broader wave of consolidation within the Permian is anticipated, it has developed slowly this year because Wall Street has punished nearly all companies spending on acquisitions, fearing that they are overextending themselves. Parsley’s stock fell by more than 10 percent Monday. Some industry analysts had viewed Parsley as a more likely takeover target
than as an acquirer.
The conundrum, though, is that both industry and Wall Street observers alike believe too many companies are operating in the Permian and that consolidation is necessary and inevitable. Oil prices are weaker, activity has dipped throughout the U.S. shale industry and the biggest players such as Exxon Mobil, Chevron and Houston’s Occidental Petroleum increasingly aim to use their size and scale to dominate the Permian. It’s harder for smaller companies to compete in that environment.
The largest independent oil and gas producer, ConocoPhillips, also is growing in the Permian, as well as in
other regions including Alaska and western Canada. As such, ConocoPhillips said it will sell most of its Australia business to the Australian firm Santos Ltd. The sale includes ConocoPhillips’ majority ownership of the Darwin liquefied natural gas facility, its interest in the Barossa gas development project and its stakes in the Caldita, Bayu-Undan, Poseidon and Athena fields.
ConocoPhillips will hold onto its controlling share of the Australia Pacific LNG project, which came online in 2016 through a partnership with Australia’s Origin Energy and China’s Sinopec.
ConocoPhillips has sold
other international holdings of late. In April, the oil producer said it would sell its North Sea assets in the United Kingdom for $2.7 billion to London-based Chrysaor. Late last year, ConocoPhillips sold its holdings in East Timor.
David Low, a senior analyst with the energy research firm Wood Mackenzie, said the new Australia deal fits with ConocoPhillips’ recent strategies.
“We now expect the U.S. company to redeploy this capital into its North American (shale) and Alaskan positions,” Low said. “ConocoPhillips already allocates around 70 percent of its capital into its U.S. operations, so this sale is firmly in
line with its strategy of reducing international exposure and increasing North American output.”
Other oil majors have pursued similar strategies. Exxon Mobil, for example, recently agreed to sell its Norwegian North Sea assets for $4.5 billion. Exxon also is considering assets sales in the Gulf of Mexico, the United Kingdom North Sea, Malaysia and Australia.
As for Parsley, the expanded firm would have 267,000 net acres in the Permian, including 147,000 net acres in the Permian’s eastern section, called the Midland Basin, and a highly contiguous 120,000-acre footprint in the Delaware.
The sale represents an 11
percent premium on Jagged Peak’s closing price last week. Jagged Peaks’ stock, however, has fallen by more than 50 percent in the last 12 months.
Following the close of the deal early next year, Parsley shareholders would own 77 percent of the combined Parsley, and Jagged Peak shareholders would hold 23 percent. Parsley also will assume $625 million in Jagged Peak debt.
Parsley’s stock fell to $15.18 a share, down $1.79. ConocoPhillips’ stock lost 30 cents a share to close at $56.13.