‘People fill their plate with more than they can eat.’
Nearly 30,000 wells have been drilled now in the Eagle Ford, Bakken, Fayetteville, Marcellus, Haynesville, Niobrara and Utica, just since year-end 2007, and three of these—the Bakken, Fayetteville and Marcellus—were already under way.
And the count doesn’t include potential wells in the Permian Basin.
“The Permian is still a story to be written,” Bill Marko, managing for investment-banking firm Jefferies LLC, told Oil and Gas Investor’s Energy Capital Conference attendees in an entrepreneur’s forum in June.
Just counting the inventory of 12, sample, onshore-U.S. operators’ well-location inventory ranges from 66,000 to 7,900 each, he said. And the list excludes, for example, that of Pioneer Natural Resources Co., which has an estimated 20,000 well locations in its legacy Permian position alone.
Overall, resource-play operators have between eight and 68 years of inventory to drill, “some of which they’ll never get to,” Marko said.
Among those buying into plays, “people fill their plate with more than they can eat.” Hence, conditions are ripe for M&A transactions. Through early June, just as American Energy Partners LP announced deals totaling more than $4 billion for Permian and in the Utica-play properties, 2014 deal volume totaled $37 billion. Marko estimates transactions by year-end will reach $100 billion.
“One of the things that chilled 2013 deal flow was activist investors,” he said. Deal volume for 2013 was some $48.2 billion, compared with $93.7 billion in 2010, $90.1 billion in 2011 and $122.3 billion in 2012.
New managements are divesting gas properties for oil-weighted assets and selling non-core positions to invest in improving overall performance metrics, debt and equity markets are open, and private-equity managers alone have $35 billion to invest, which Marko noted “equals some $100 billion of purchasing power” when leveraging the equity with debt.
Buyers have notably included foreign-based companies, whose investments in U.S. resource plays have totaled $123.3 billion since year-end 2008. “Some of them have done good deals and some of them have done bad deals,” he said. He estimates that two thirds of the $350 billion of all resource-play deals since 2008 are not economic.
New buyers include MLPs, such as Memorial Production Partners LP, which has bought into the Eagle Ford play. Another potential buyer may be LNG-export operators, which see ownership of physical gas-producing assets as a possible arbitrage in price fluctuations, he said. However, LNG operators are concerned with whether they have or can acquire the expertise to operate oil- and gas-drilling operations.
As for natural gas prices, will these grow? On the demand side, the impact of exporting it is unknown, he said. “How big? I don’t know.” The potential growth of natural gas in transportation is an additional factor. More exciting is the growth in demand for natural gas in manufacturing operations, however. He estimates some 5 billion cubic feet of new, daily demand from this.
But, for example, Appalachian Basin operator Rice Energy Inc. reported on June 2 that it brought on a new Utica well, Bigfoot 9H, with an IP of 42 million cubic feet equivalent a day, he noted.
“It’s going to be tough to ever say we’re going to be short of gas,” he concluded. “…We’re in this price environment for a very, very, very long time.”
–Nissa Darbonne, Author, The American Shales; Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.
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