Oil and Gas M&A activity rebounds in 2021, but is still off pre-pandemic pace
Energize Weekly, January 19, 2022
Oil and gas industry upstream mergers and acquisitions (M&A) rebounded in 2021 rising 25 percent to $66 billion compared to pandemic-hobbled 2020, according to a report by industry analyst Enverus.
After a slow beginning, activity picked up before cooling again at the end of the year, with a 50 percent decline in activity to $9 billion from the third and fourth quarters.
“Since the emergence of COVID, upstream M&A has been characterized by fewer, but larger, deals,” Andrew Dittmar, director at Enverus, said in a statement. “During 2020 that took the form of public companies consolidating amongst themselves and in 2021 transitioned to a focus on rolling up private E&Ps” – exploration and production companies
Still, the volume of deals remained depressed, Enverus said, with 172 in 2020 and 179 transactions in 2021, compared to an average of nearly 400 deals per year before COVID.
The 2021 performance, while an improvement, was still below the $72 billion average annual performance from 2015 to 2019.
“Buyers have been largely focused on adding high-quality inventory to build out their runway and sustain the strong cash flow generation recently achieved,” Dittmar said. “The largest supply of inventory meeting buyers’ criteria is available for sale in the Delaware for oil and the Haynesville for gas.”
The Delaware Basin straddles New Mexico and West Texas. The Haynesville Basin is in East Texas and Louisiana.
The two basins are the scene of so much M&A activity because both plays have had significant private investment, and those investors are now looking to monetize their positions, primarily through sales to publicly traded companies.
For example, GEP Haynesville, a joint-venture between GeoSouthern Energy Corp. and GSO Capital Partners LP, sold its assets to Southwestern Energy Corp. for $1.8 billion in the fourth quarter.
The largest deal of the quarter was the purchase of Pioneer Natural Resources’ position in the Delaware Basin by Continental Resources for $3.25 billion.
Pioneer had acquired the properties when it merged with Parsley Energy during the height of the public company M&A boom in late 2020. “Big time corporate M&A often leads to a subsequent wave of asset deals as buyers prune their expanded portfolios,” said Dittmar.
Chisholm Energy’s sale of its Delaware Basin positions to publicly traded Earthstone Energy for $604 million was the third largest deal of the fourth quarter.
There was private equity activity in the quarter as some operators reloaded their portfolios. Paloma Partners bought Haynesville assets from Goodrich Petroleum for $480 million.
“The IPO market has been substantively closed to traditional E&Ps for several years now, with just one notable offering since 2017 – Vine Energy which only lasted six months as a publicly traded company before exiting in mid-2021 via a sale to Chesapeake Energy,” Dittmar said. “A couple of companies now look likely to again test whether newfound investor enthusiasm for the space translates into a willingness to support IPOs. That should be one of the more interesting stories to follow in 2022.”
Overall, Enverus is predicting an active M&A market in 2022 with prices remaining attractive in the Delaware and Hayneville basins, while there is also “high-quality” inventory in other plays, such as the Midland Basin and the northeast Marcellus dry gas. There have, however, been few sellers in those areas.
