After continued demand destruction as a result of the global pandemic following historic price declines as a result of the Russia-Saudi price war, the oil and gas industry has been forced to re-calibrate in response to shifting market conditions with capital discipline taking center stage. Although 2020 saw the fewest deals across the sector in more than a decade, consolidation through this price cycle seems to be the driving force of 2021 as companies push to boost margins, cut emissions, and prepare for the energy transition.
- ConocoPhillips Acquires Concho Resources
- $13.3 Billion All-Stock Transaction
- Pioneer Natural Resources Acquires Parsley Energy & DoublePoint Energy
- $7.6 Billion All-Stock Parsley Transaction
- $6.4 Billion Cash and Stock DoublePoint Deal
- Merger of Bonanza Creek Energy and Extraction Oil & Gas to Form Civitas; Acquisition of Crestone Peak
- $2.6 Billion All-Stock Bonanza & Extraction Enterprise Value
- 22.5 Million of Bonanza Creek Common Shares for Crestone Peak
- Diamondback Energy Scoops Up Guidon Operating, Finalizes QEP Merger & Sells Bakken Acreage
- $375 Million Cash & 10.68 Million Shares Guidon Stock
- $2.2 Billion All-Stock QEP Merger
- $745 Million All-Cash Bakken Asset Sale to Oasis Petroleum
- Cabot Oil & Gas and Cimarex Energy Merger
- $17 Billion All-Stock Enterprise Value
- Kayne Anderson Capital Advisors Portfolio Merger in the Anadarko Basin
- Formation of 89 Energy III LLC with 80,000 Net Acres & 21,000 Net BOE/D
- Society of Petroleum Engineers (SPE) & American Association of Petroleum Geologists (AAPG) Merger
Businesses across many industries faced a challenging 2020 following the spread of COVID-19 and subsequent decline in economic activity. The oil and gas industry has been one of the hardest hit by the pandemic, with energy industry revenues declining by 54%. As demand for energy declined and revenues decreased substantially, most companies pulled back capital spending and lowered M&A activity. There were only 258 deals across the sector in 2020, the lowest number in more than a decade. Valuations fell below $30 billion in the first half of last year, also the lowest in the decade, but rebounded in the second half to almost $170 billion . Despite these challenges, 2021 appears to be a period of growth and transformation through consolidation as companies push to boost margins, cut emissions, and prepare for the energy transition.
ConocoPhillips Acquires Concho Resources
In mid-January, ConocoPhillips completed its acquisition of Concho Resources, one of the largest independent producers in the Permian Basin, following approval by shareholders of both companies. The all-stock transaction, which was valued at about $13.3 billion when it was announced in late October, was the biggest deal of 2020 and gives ConocoPhillips about 700,000 net acres in the Permian Basin, more than quadruple the size of its previous position in the region . Based in Midland, Texas, Concho Resources was one of the largest pure-play unconventional shale producers in the Permian Basin. With positions in both the Delaware and Midland sub-basins, it was the fifth-largest producer in the basin by volume. The company’s total production for the second quarter was 319,000 BOE/D. Including their new core acreage position in the Permian, ConocoPhillips also has positions in the Eagle Ford and Bakken in the Lower 48 and the Montney in Canada, announcing they will produce over 1.5 million BOE/D across its global portfolio . The acquisition of these two premier companies is intended to lead the structural change for the industry and according to Ryan Lance, Chairman and CEO of ConocoPhillips, expects the company to deliver differential performance on three key mandates: “providing affordable energy to the world, generating superior returns on and of capital and demonstrating ESG leadership” .
Pioneer Natural Resources Acquires Parsley Energy and DoublePoint Energy
Pioneer Natural Resources Co. completed its acquisition of Parsley Energy Inc. on January 12, forming what Pioneer CEO Scott D. Sheffield calls “the premier Permian independent energy company” . The all-stock acquisition valued at $7.6 billion inclusive of Parsley debt assumed by the Dallas-based Pioneer, gives them combined control of nearly 1 million acres across the Permian Basin with positions in both the Delaware and Midland sub-basins. The companies had previously said in a joint release from late October announcing the transaction that they expected the combination to drive annual synergies of $325 million in addition to additional cash flow per share, free cash flow per share, earnings per share, and corporate returns beginning in the first year . The combined company will be the leading Permian independent exploration and production company with a premium asset base of approximately 930,000 net acres, no federal acreage, a production base of 328 thousand barrels of oil per day, and 558 thousand barrels of oil equivalent per day as of the second quarter of 2020 .
Three months after completing their acquisition of Parsley Energy, Pioneer Natural Resources announced an agreement to acquire the leasehold interests and related assets of DoublePoint Energy in a cash and stock transaction valued at approximately $6.4 billion, which included the assumption of $900 million of debt and liabilities . DoublePoint Energy is a Fort Worth, Texas-based upstream oil and gas company with positions in the Midland Basin covering roughly 97,000 net acres. The DoublePoint acreage is primarily undrilled and augments Pioneer’s premium asset base, increasing the company’s acreage position to more than 1 million net acres across the Permian Basin. More importantly, the acreage has no exposure to federal lands, and Pioneer expects production from both of the acquired assets to reach approximately 100,000 BOE/D by late in the second quarter of 2021 . In a company release, Pioneer said it expects the acquisition of DoublePoint to result in annual cost savings of approximately $175 million through operational efficiencies, reductions in administrative costs, and interest expenses with the expected present value of these cost savings totaling approximately $1 billion over a 10-year period .
Combined, Pioneer has spent $14 billion adding assets to its pure-play position in the Permian Basin in about six months. The company now has an acreage position of more than 1 million net acres in the Permian Basin with no exposure to federal lands plus close to 15,000 Tier 1 drilling locations .
Bonanza Creek Energy and Extraction Oil & Gas Merge Forming Civitas Resources, Subsequently Acquires Crestone Peak
Bonanza Creek Energy and Extraction Oil & Gas agreed to combine in an all-stock merger on May 10. The combined company which will be named Civitas Resources will be the largest pure-play energy producer in Colorado’s Denver-Julesburg (D-J) Basin, with an aggregate enterprise value of approximately $2.6 billion . The combined company will operate across approximately 425,000 net acres in Colorado, with a production base of 117,000 BOE/D. The two companies said they are aiming to take the modern-day E&P business model of operational discipline plus a commitment to free cash flow generation and shareholder returns to the next level by also becoming Colorado’s first net-zero oil and gas producer . According to President and CEO of Bonanza Creek, Eric Greager, “successful E&P operators will be those who place a priority on disciplined capital deployment, deliver operational and cost excellence, maintain a relentless focus on shareholder value, and have governance standards that are aligned with the times” and is thus the mission statement of Civitas .
The announcement comes just months after Bonanza Creek Energy announced the successful completion of its merger with HighPoint Resources Corporation on April 1st. The transaction was unanimously approved by the board of directors and stockholders of each company as announced at special meetings held independently back in March. According to Eric Greager, the combination creates a company of scale in the rural D-J Basin, and a business capable of delivering significant and sustainable levered free cash flow . Now, after forming Civitas, the company is projected to be “one of most well-capitalized companies in the industry, with a leverage ratio below 0.3x pro forma first-quarter 2021 net debt / 2021E EBITDA”. Additionally, the companies expect to achieve annual expense and capital savings of approximately $25 million from the combination .
Following the creation of Civitas Resources, the organization continued its D-J Basin takeover with the acquisition of privately held Crestone Peak Resources LLC in an all-stock merger transaction on June 6th. The Crestone transaction, which includes the exchange of 100% of the equity interests in Crestone for approximately 22.5 million shares of Bonanza Creek common stock, is subject to the consummation of the Bonanza Creek/Extraction merger . The acquisition, Bonanza Creek’s third so far this year, represents the company’s strategy to “position [itself] as the modern-day E&P business model”, according to Eric Greager. “Our combination with Crestone is just one early marker of what we hope to achieve as Civitas, as we establish ourselves as the preferred consolidation partner in the D-J Basin and work toward becoming one of the top energy producers in the nation” . Additionally, Civitas expects the acquisition of Crestone to further advance their ESG strategy, which includes becoming Colorado’s first net-zero oil and gas producer. With the addition of Crestone, Civitas will operate across more than half a million net acres, with leasehold positions in all key areas of the D-J Basin. The company will also have an estimated production base of approximately 160,000 BOE/D and year-end 2020 proved reserves of more than 530 million BOE 
Diamondback Energy Acquires Guidon Operating and QEP Resources
Diamondback Energy completed its acquisition of leasehold interests and related oil and gas assets from Guidon Operating LLC, a portfolio company of Blackstone Energy Partners on February 26th. “Aggregate consideration consisted of $375 million in cash and 10.68 million shares of Guidon’s common stock after accounting for post-effective date adjustments” . As a result of the acquisition, Diamondback added approximately 32,500 net acres in the Northern Midland Basin, primarily held by production allowing for capital-efficient full-field development . A mere month later, Diamondback Energy announced it has completed its previously announced acquisition of QEP Resources in an all-stock merger valued at around $2.2 billion following approval of the merger and related proposals by the QEP stockholders at their special meeting held on March 16, 2021 . Diamondback announced the deal will include $1.6 billion of QEP’s debt and through the transaction, Diamondback will add material Tier-1 Midland Basin inventory to its portfolio. The two deals will lower the company’s 2021 reinvestment ratio and enhance its ability to generate free cash flow, de-lever, and return capital to stockholders . The deals will also provide tangible annual synergies of at least $60 to $80 million comprised of G&A savings; cost of capital and interest expense savings; improved capital efficiency from high-graded development; physical adjacencies to increase lateral lengths; and significant adjacent Permian midstream assets .
The focus of the two acquisitions is Diamondback’s core acreage in the Midland Basin, supported by a significant midstream asset base. This likely creates additional dropdown opportunities to its midstream affiliate, Rattler, but Diamondback considered QEP’s Bakken position non-core, announcing a potential divestment on the horizon, pending market conditions allowing for a reasonable valuation . Keeping up with their monthly timeline, Diamondback agreed on May 3rd to sell certain acquired Bakken assets to Oasis Petroleum in a cash transaction valued at approximately $745 million . Since the acreage is outside their core Midland Basin, it was no surprise Diamondback held true to their words to sell the Williston Basin assets with sale proceeds to be used toward debt reduction.
Cabot Oil & Gas and Cimarex Energy Combine in “Merger of Equals”
Cabot Oil & Gas and Cimarex Energy announced plans on May 24 to combine in an all-stock “merger of equals.” According to their joint press release, the two U.S. shale producers are banking on a “diversified oil and gas portfolio to generate sustainable returns across a wide range of commodity price scenarios” . With Cabot’s approximately 173,000 net acres in the Marcellus Shale and Cimarex’s approximately 560,000 net acres in the Permian and Anadarko basins, the combined business will have a multi-decade inventory of high-return development locations in premier oil and natural gas basins in the U.S. . The combined business, which will operate under a new name, will be headquartered in Houston and is estimated to have an enterprise value of approximately $17 billion . The free cash flow outlook of the combined company is approximately $4.7 billion from 2022 to 2024 based on $55/bbl WTI oil prices and $2.75/MMBtu NYMEX natural gas prices. In addition, the companies are also targeting annual general and administrative cost synergies of $100 million within two years . The combined organization will continue to build on the two companies’ ongoing ESG efforts by continuing to link executive compensation to ESG performance and maintaining strong board oversight of ESG risks and programs.
Casillas Petroleum Resource Partners, Native Exploration Holdings and Acacia Exploration Partners Consolidate to Form 89 Energy III
Kayne Anderson Capital Advisors LP combined three of its portfolio teams in the Anadarko Basin on May 20. In a press release, Kayne Anderson Energy Funds announced the all-equity consolidation of Casillas Petroleum Resource Partners LLC, Native Exploration Holdings LLC, and Acacia Exploration Partners LLC to form the Oklahoma-based 89 Energy III LLC. The consolidation of the three private oil and gas operators with assets across Oklahoma in the SCOOP/STACK shale play will result in an operating footprint that now covers approximately 80,000 net acres across Oklahoma producing about 21,000 net BOE/D . Additionally, 89 Energy III will manage the assets of Triumph Energy Partners LLC that will add an additional 15,000 net acres in Oklahoma’s STACK play with roughly 6,500 net BOE/D of production . The announcement highlights the reality private equity firms have come face to face with as capital discipline by a majority of public E&P companies has derailed the classic build and flip strategy they have pursued for years.
AAPG and SPE Consider Merging Into Single Organization
M&A activity in the oil and gas industry has not only been focused on E&P companies but across the entire industry, including key professional organizations. On May 25th, the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Engineers (SPE) said they are considering merging into one organization, strengthening their existing partnerships while reducing operational overlap and redundancy . The organizations said the idea of merging is not new, but the timing is optimal as the energy transition unfolds and the industry recovers from 2020 market challenges. While the deal has not been confirmed, it highlights the accelerated trends experienced in the oil and gas industry to merge in an attempt to reduce overlap and build synergies. According to a joint release, the new organization would better prepare members for changes happening in the industry, enable growth to its member and customer base, and provide an opportunity to attract new members in existing and new markets .
While these are only some of the many deals announced since the start of the new year, consolidation activities through this price cycle seem to be a key focus in the first part of the year. Consolidation did slow in the first quarter after rallying late in 2020, dropping to 76 deals in Q1 compared to 107 in Q4 2020 . Luckily, there have been signs of increased activity entering the summer months with potential catalysts for more deals as the year wears on. Although activity was light in the first quarter, it was up notably from a year earlier when the pandemic arrived and all total deals were valued at a mere $600 million. After several years where companies focused on either lease and flip or production growth at any cost strategies, investors began to demand more disciplined capital deployment, a reduction in debt-fueled growth, and an ability to generate free cash flow. Whether the goals for consolidation are value generation, tax gains, increased market share, or reducing competition and cost, the recent rise in such activities in the sector appear to be a mainstay as operators re-calibrate in response to shifting market conditions with capital discipline remaining center stage.
 https://www.naturalgasintel.com/u-s-oil-gas-ma-activity-sinks-in-1q2021-but-signs-of-momentum-ahead-enverus-says/  https://www.hartenergy.com/exclusives/bonanza-creek-continues-d-j-basin-consolidation-crestone-peak-deal-194492?mkt_tok=NDMzLU9ESy04ODkAAAF9hwqHi9gQzbXkWlQ3XrM9EW_Kb2haHB3fRxwZjzdriTzfsajwnB9NJNw1EQ1QgSbik28ldAPANqCXqm2626hWuE-6nDo_8cpSAb1pSr19uSPc
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