What I Like About Texas

Mar 24, 2023

Wednesday, 06/07/2023Published by: Housley Carr

The headwinds facing producers in the Permian, the Eagle Ford and other shale plays are trimming the valuations of oil and gas assets and making it easier for deep-pocketed acquirers and private-equity-backed sellers to reach deals. For proof, look no further than the ongoing frenzy of M&A activity in South and West Texas, where large and medium-size E&Ps alike continue to gobble up smaller producers with complementary assets. Their goals are one and the same: increase scale, improve efficiency, cut costs and build inventory in highly productive plays with easy access to Gulf Coast refineries, fractionation plants, and export docks for oil, LNG and NGLs. In today's RBN blog, we discuss the most significant deals in the Lone Star State so far this spring and what they mean for the acquiring companies.

Sagging hydrocarbon prices, concerns that the best well sites have already been drilled, and prospects for a slowing economy this summer and fall have combined to bring down the valuation of many oil and gas assets in recent months, thereby closing the bid/ask spread and enabling a number of deals to be reached. Just a few weeks ago, in Let's Go Crazy, we looked at Ovintiv's $4.275 billion plan to purchase "substantially all" of the leaseholds and related assets of EnCap Investments’ Black Swan Oil & Gas, PetroLegacy Energy, and Piedra Resources in the Permian's Midland Basin. The deal, which is expected to close later this month, is a biggie for Ovintiv — it will nearly double the company's oil and condensate output in West Texas, lower its per-barrel production costs, and add more than 1,000 well locations to its inventory.

And Ovintiv is far from alone in its multibillion-dollar bid to expand its holdings in Texas. As we said more than a year ago in Buy, Buy, Buy, the upstream oil and gas sector is in the midst of the most impactful wave of corporate consolidation in decades, with many of the deals focused on the Permian — for example, ConocoPhillips acquiring Concho Resources, Cabot Oil & Gas merging with Cimarex Energy to form Coterra Energy, and Pioneer Natural Resources buying Parsley Energy and DoublePoint Energy. In Baby, I’m-A Want You, we focused on the half-dozen Permian-related deals that Earthstone Energy completed to expand its role in both the Midland and Delaware basins. Then, in other Permian-related M&A blogs, we looked at Devon Energy's extensive "portfolio renewal" program (Spread Your Wings), followed by reviews of Diamondback Energy's bolt-on acquisitions of FireBird Energy and Lario Permian (West Texas in My Eye) and Matador Resources’ April 2022 purchase of Advance Energy Partners (Harder, Better, Faster, Stronger).

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