Here’s something about Januarys—especially when they aren’t cold—that puts a chill in the oil and gas A&D market.
By spring, however, M&A in the U.S. had regained its footing with a sizzling $33 billion second-quarter from more than 40 deals—seven worth at least $1 billion, according to Enverus.
Andrew Dittmar, senior M&A analyst at Enverus, said that investor pressure to operate leaner made consolidation a priority.
“With three extremely active quarters out of the last four, there has been more than $85 billion announced in upstream M&A during the prior 12 months,” he said.
But the targets for mergers and acquisitions shifted in second-quarter 2021. During 2020, consolidation between public companies focused on operational and G&A synergies drove deals.
In 2021, only two public company combinations were tallied more than $1 billion: Bonanza Creek Energy Inc.’s $1.4 billion purchase of Extraction Oil & Gas Inc. in Colorado’s Denver-Julesburg Basin and Cabot Oil & Gas Corp.’s merger with Cimarex Energy Co. in a deal that valued Permian Basin and Midcontinent producer Cimarex at $9.3 billion. Only the Bonanza Creek merger offers operational synergies.
Public companies instead turned to the private market:
- Pioneer Natural Resources Co. agreed to a $6.4 billion deal for Midland Basin pure-play DoublePoint Energy;
- Southwestern Energy Co. will buy Indigo Natural Resources LLC for $2.7 billion; and
- EQT Corp. purchased the Marcellus’ Alta Resources LLC for $2.9 billion.
“The uptick in acquisition activity targeting private equity-backed E&Ps is likely a welcome relief for sponsors that were challenged to find exit opportunities over the last few years,” Dittmar said. “The deals targeting private E&Ps are less about cost-cutting synergies and more about adding inventory. That can be in a buyer’s home basin, like Pioneer/DoublePoint, or entering a new area as Southwestern did by acquiring Indigo in the Haynesville Shale.”
Second-quarter 2021 Deals by Value |
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Date | Buyer | Seller | U.S. Play | Value ($B) |
5/24/21 |
Cabot Oil & Gas |
Cimarex Energy |
Delaware/Midcon | $9.25 |
4/1/21 |
Pioneer Natural Resources |
DoublePoint Energy |
Midland Basin | $6.45 |
6/8/21 |
Contango Oil & Gas |
Independence Energy |
Multiple | $4.48 |
6/2/21 |
Southwestern Energy |
Indigo Natural Resources |
Haynesville | $2.98 |
5/6/21 |
EQT |
Alta Resources |
Marcellus | $2.9 |
Private equity sponsors are receiving mostly buyer’s equity in these sales, with stock constituting about 70% of the value paid with the balance made up of cash and debt assumed. In past years, private sellers typically only wanted cash.
“Following a rally in equities that raised the valuation for public E&Ps, their stock represents an attractive currency to buy private and PE-backed counterparts,” Dittmar said.