Updated at 12:22 p.m. Updates from the conference will be posted here throughout the day. You can also keep up on Twitter at @HartEnergyConf.
DALLAS—Hart Energy’s Richard Mason opened the A&D Strategies and Opportunities Conference Oct. 23 with a quick state-of-the-transaction-space description: “When the market is up, deals flow. When the market is down, deals flow.”
Speakers then backed him up with specifics.
Bill Marko, managing director of Jefferies LLC, said there doesn’t feel like any upside now, but cutbacks in Saudi production following the attack on its facilities is a plus. Natural gas, however, is in a tougher spot because there is “tons of supply.” The same for NGL, he said. Even the Permian Basin has cooled off some.
Marko also said the days of high-premium deals over because there are too many companies out there.
“A lot now is about execution,” he said. “The use of technology and data is very important. That’s going to be where people make the money.”
He added that he expects small- and mid-cap consolidation to continue.
Marko’s other comments:
- Royalty and minerals deals will continue to grow. Public/private buyers are being created and sellers see the value in carving out royalties for healthy valuations;
- “The old days are over.” Everything is being repriced. Investors don’t want risk and nothing trades on promises anymore. Track records are what is important.
- There’s money, but everything is getting elongated & slowed down. Be patient, whether you are buying or selling. There are lots of broken deals out there. Know your strengths and play to them.
The mid-morning “Money, Money, Money, Money” roundtable, moderated by Hart Energy’s Chris Sheehan, brought up the topic of environment, social and corporate governance (ESG).
ESG is of growing interest to investors, said Damon Box, managing director of Simmons Energy. “As an industry, we have to face it,” he said.
Box also wondered aloud at what level free cash flow would have to be to get investors to return to the oil and gas space. He said he didn’t know and noted that many investors think oil and gas will be gone in 20 years.
Other comments from panelists:
- Stuart Rexrode, managing partner of Blue Rock Energy Partners: the deal flow has slowed and unrealistic expectations have become a problem;
- Preston Powell, managing director of Carnelian Energy Capital: He hasn’t seen wholesale revaluation of PDPs despite the soft deal market;
- Box: There is some mezzanine activity but it’s mostly below the radar—there are more generalist investors in that niche. He also said that “water’s a big deal, people are looking to monetize assets.”
Earlier in the morning, Jay Graham, CEO of Spur Energy Partners LLC, said his company has deployed more than $1 billion of capital in the Yeso Trend in the Permian Basin. It targets scalable, high-margin assets that generate FCF and deliver returns to investors. “We’re getting out of the build-and-flip private equity model,” he said.
Shallow oil and Yeso conventional assets are the focus for Spur.
“We mitigate risk with an active hedging strategy and capital discipline,” Graham said. Spur likes the low costs and quick cycle times, the high-quality reservoir with horizontal zone development opportunities and the legacy proved developed (PDP) reserves base of the Yeso.
Bob Edwards of NGP Energy Capital Management said his firm has $4.3 billion to invest. He expects to shift more capital into midstream and minerals and away from the traditional mix.
Despite record oil and gas production growth, public E&P equity returns have been poor over the past five years, Edwards said. “The public markets are dead,” he said. “Our growth industry is now a performance industry where execution and scale matter. Consolidation is inevitable.”
Efficient and effective development requires scale that small niche companies will struggle to achieve. NGP recently collapsed four PDP companies into one. “It’s hunkering down time,” Edwards said.
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