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How has the A&D market been this year?
This year I would describe the A&D market as stop and go. For example, despite starting off with an arguably low first quarter for a total deal value was only about $1.6 billion, in the second quarter, deal value skyrocketed to a record high. Though, a caveat to that would be Occidental Petroleum’s acquisition of Anadarko Petroleum, which was a megadeal. Of course, we could talk forever about that including the whole back and forth between Chevron and Occidental coming in with their own bid which Anadarko ultimately accepted. Only counting the first three quarters of U.S. E&P transactions for the year, total deal value is going to be at about a little more than $80 billion, which is more than the total deal value for 2018. However, if you take out that megadeal—which is about $55 billion of Occidental’s acquisition of Anadarko which closed in August—it is drastically lower than last year.
We know it’s really been a tough year. Let's talk about the deals that did get done.
Market sentiment toward A&D has continued to be negative this year. Deals both corporate and asset level acquisitions have received material blowback when they've been announced. Even consolidation that people clearly want to happen, it's been tough to get those deals through with few exceptions. One that I can think of off the top of my head is PDC Energy’s acquisition of SRC Energy in the D-J Basin. Now the deals on the flip side of that, that have had difficulty with the market and their investors, an example of that is Callon Petroleum's agreement to acquire Carrizo Oil and Gas. Callon had to come back and reconfigure the terms of that deal. That deal now is supposed to close in the coming months but that took a little work on Callon Petroleum’s side to get that through. Now, we started off the year with consolidation being hyped and that this was going to be the year of consolidation and that we were going to see a wave of consolidation. Though, Scott Sheffield, CEO of Pioneer Natural Resources, told Oil and Gas Investor in an interview that will be in the January issue of Oil and Gas Investor that he has gone on record saying that consolidation won’t happen until the majors deplete their inventory, which isn’t going to happen anytime soon.
Let’s look now at A&D in the private equity world.
The problems facing public companies and A&D has bled over into private equity this year. That build and flip model that private equity has run on has not worked largely this year. Bob Edwards, a partner of NGP, told attendees at Hart Energy’s A&D Strategies and Opportunities Conference in October that NGP has even started merging some of their E&P companies in their portfolios and that is expected to continue. Though, with that comes its own set of problems.
What are the bright spots you see with A&D?
A bright spot in A&D this year is also similar to last year, but it’s minerals. Minerals has continued to be a bright spot though albeit fading slightly. One of the few successful IPOs this year has been a minerals company, Brigham Minerals. Then there still continues to be a consistent deal flow though it is kind of dropping off with mineral companies. Examples of that I can think of is Diamondback Energy's, Viper Energy Partner subsidiary. They announced in the second half of this year a multimillion-dollar dropdown from Diamondback and they've also done several of their own transactions.
Top A&D Trends
- M&A Pressure: Consolidation On The Climb
- Executive Q&A: Of Capital And Consolidation
- Shadow Market: E&P A&D Six-Month Review
- HART ENERGY CONNECT: Why Activist Investors Aren’t Going Away
- Quantum CEO: Welcome To Shale 3.0
Top U.S. E&P Transactions
- Occidental, Anadarko Petroleum Make It Official With Merger Agreement
- Hilcorp To Buy BP’s Alaska Business For $5.6 Billion
- Callon Petroleum To Acquire Carrizo For $3.2 Billion
- WPX Energy Makes $2.5 Billion Acquisition Of Felix Energy Official
- Parsley To Acquire Jagged Peak In $2.3 Billion All-Stock Transaction
For more up-to-date information on the latest deals visit Hart Energy’s online database of transactions.
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