How E&P Deals Work Now

Just as the E&P sector changed its focus from growth and even sprawling net acreage to capital discipline, dealmaking in 2021 and beyond has been altered into a single question: Does it make money?

The times have changed in A&D dealmaking. Illustration by Robert D. Avila.

[Editor's note: A version of this story appears in the March 2022 issue of Oil and Gas Investor magazine.]

The notion that capital discipline extends only to the drill bit was firmly vanquished in 2021 as the deal activity that dominated in the public arena followed a rudimentary formula: cash flow good, growth bad.

The key theme for deals in 2021, and which extends through the first month of 2022, was that free cash flow was not a mere part of the equation but the entire algorithm.

As Mike Kelly, chief strategy officer for Northern Oil and Gas Inc., recently said at an Independent Petroleum Association of America (IPAA) event, public companies are more or less pinned to cash flow.

“Investors have spoken; they want dividends, they want share buybacks. They want production that’s flat,” he said.

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Darren Barbee

Darren Barbee is senior editor for Oil and Gas Investor magazine.