For most of 2016, uncertainty has kept deals at a near standstill as E&Ps fretted over what their assets were worth.
But fear works both ways. It has made May a merry month so far for deal activity with worries of being locked out of the next big play likely to keep the transactions coming.
A&D activity and values lifted significantly in the first 10 days of May as announced U.S. transactions hit $1.6 billion. It’s the best start to a month in 2016 and nearly as much as all the E&P deals in January, according to A-DCenter.com data.
The wave of property transactions has been spurred by interest in expanding and blocking up acreage for longer laterals. The scarcity value in some plays has also encouraged investment, said Jonathan D. Wolff, equity analyst with Jefferies LLC.
In fact, Jefferies LLC is marketing PayRock Energy, backed by EnCap Investments LP.
PayRock has been “knocking out 1.25 MMboe Meramec wells (60% oil) for $3.5 million, with about 200% IRRs at $40 per barrel of oil, said Mike Kelly, senior analyst with Seaport Global Securities.
The company has about 57,000 net acres in Kingfisher and Canadian counties, Okla., and more than 30 wells drilled to date.
Diamondback Energy Inc. (NASDAQ: FANG) is among other notable companies that Topeka Capital Markets analyst Gabriele Sorbara expects to see some A&D activity from in the near term. Diamondback’s cohort Viper Energy Partners (NASDAQ: VNOM) is also a likely buyer.
Jefferies said that, indeed, emerging and expanding plays are seeing the most activity.
“In the U.S. onshore, it has come down to a few ‘land grabs,’” Wolff said.
They include the:
- Stack Meramec reservoir—Blaine, Canadian, Kingfisher counties, Okla.;
- Midland core; and
- Northern Delaware Culberson, Loving, Ward, Reeves counties in Texas and Lea, Eddy counties in N.M.
“But the Delaware Basin is a difficult development area that requires consistent funding. Likewise, with significant ‘trapped’ investments in the Delaware—smaller producers and PE buyers—we expect a lot of valuable land to trade out to the larger companies over the balance of this year,” he said.
As of April, most purchases were still being made by private equity, followed by large and small-mid cap public companies.
In the Scoop, Utica and Marcellus, most of the acreage is tied up in a few hands though active trading and sales of land interests has accelerated, Wolff said.
That tends to be favorable to the buyer.
EQT Corp. (NYSE: EQT) said on May 2 that it would buy Statoil’s (NYSE: STO) Marcellus acreage, some of which is adjacent to EQT’s. The agreement includes 62,500 net acres for $407 million.
The assets are primarily located in Wetzel, Tyler and Harrison counties, W.Va., and add to EQT’s core development area. The deal adds production of 50 million cubic feet equivalent per day (MMfce/d).
“EQT and others noted on earnings calls that a more robust availability of acreage packages has emerged. The insight here is that private landowners and private equity have waited as long as they can,” Wolff said.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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