Oil and Gas Minerals M&A: The Royal We

Some oil and gas minerals companies are pushing for consolidation (and scale) as they try to defragment a sector that’s stalled on transactions the past couple of years.

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Mineral and royalty deals have started to pivot toward consolidation after last year’s M&A market was muted. More recent deals, in particular the $1.9 billion merger between Falcon Minerals and Desert Peak Minerals, could begin the process of defragmenting the sector.

That may or may not be a good thing, analysts say. They’re also skeptical about minerals companies putting all their eggs in one shale.

Minerals buyers, which were on the vanguard of buying proved developed producing (PDP) focused assets before E&Ps began their transition to the same concept, have struggled to return to the same pace of deals they saw prior to the pandemic.

“You don't necessarily have the same pressure for consolidation in minerals as in [working interest] since there isn't much in the way of G&A savings from deals—minerals are mostly a low-overhead business—and there isn't the same type of in-field operational synergies,” said Andrew Dittmar, a director with Enverus.

Heated competition for the hottest basins remains. Desert Peak estimated that about 68% of new well spuds are concentrated in the Eagle Ford Shale and the Permian Basin. While there are plenty of opportunities to buy—they estimate 65,000 individual mineral owners in the Permian—they also acknowledge the core of the play is where they want to be. But that only makes a strong case for the need to consolidate, Desert Peak CEO Chris Conoscenti said.

“The market clearly doesn’t need 10 companies doing the same thing in the same places,” he said. “We’re looking to be relevant to market investors at a large scale.”

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Darren Barbee

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