US oil ‘mini-majors’ emerge from shale patch deals, soaring energy prices By Reuters


Β© Reuters. FILE PHOTO: A pump jack is seen on an oil field near Bakersfield on a foggy day, California January 17, 2015. REUTERS / Lucy Nicholson

By David French

HOUSTON (Reuters) – A group of oil and gas “mini-majors” are emerging among US shale producers, built from aggressive dealmaking that industry players expect will accelerate on strong commodity prices and the retreat of Europeans from US onshore production.

The players, including Devon Energy Corp (NYSE :), EQT Corp (NYSE :), Continental Resources (NYSE :), Pioneer Natural Resources (NYSE πŸ™‚ and Diamondback (NASDAQ πŸ™‚ Energy, are poised for another round of dealmaking, according to interviews with a dozen sources.

“The conditions are there for public companies, in particular large independents and mid-caps, to use dealmaking to reshape themselves and ensure they have adequate inventory to capitalize on this commodity price supercycle,” said Pete Bowden, global head of energy and power at Jefferies.

Among potential targets are Colgate Energy Partners, controlled by Pearl Energy Investments and NGP, and Ameredev II, backed by EnCap Investments. Both were formed after their private equity owners put separate companies together to make them more attractive to the emerging mini-majors.

The trend echoes the late-1990s, when rapid combinations spawned global supermajors BP (NYSE :), Exxon Mobile Corp (NYSE πŸ™‚ and Chevron Corp. (NYSE πŸ™‚ Like then, this round of consolidation uses size to improve economies of scale. But this time, the mini-majors are bulking up largely in individual US shale formations.

Pioneer Natural increased its holdings in the Permian basin with two deals last year and now produces more oil and gas there than Exxon. EQT has become the largest producer in the United States from its stronghold in the Marcellus shale of Pennsylvania and West Virginia.

Devon, the best-performing stock in the in 2021, also has been hunting for deals, say investment bankers, after losing out last year when Shell (LON πŸ™‚ sold assets in the heart of the US shale industry.

Devon has made at least two overtures to buy Exxon’s production in North Dakota’s Bakken shale, including one earlier this year which valued the assets at more than $ 6 billion, two sources said on condition of anonymity to discuss private information. Devon has spread its bets across Texas, Oklahoma, Wyoming and North Dakota.

Devon and Exxon both declined comment. None of Continental, Diamondback, EQT, and Pioneer responded to requests for comment.

BIGGER IS BETTER

US shale companies are acting to secure the scale to remain relevant to institutional investors that only put money in the biggest companies, along with top quality oilfields to take advantage of surging crude prices, said Jefferies’ Bowden.

“If you look at the big deals done in the last couple of years, every buyer has been proven right, in securing A-1 locations at valuations which now appear cheap, with the benefit of hindsight,” he said.

Volatile prices make it tougher to strike deals as buyers and sellers disagree on valuation. Still, tie-ups continue.

Last week, Whiting Petroleum (NYSE πŸ™‚ Corp and Oasis Petroleum (NASDAQ πŸ™‚ Inc announced a Bakken-focused combination. This year, PDC Energy (NASDAQ πŸ™‚ Inc and Civitas Resources struck deals which, if all are consumed, would give four companies most of the production in Colorado’s Denver-Julesburg basin.

The role model for the mini-majors is ConocoPhillips (NYSE :), the former major that shed refining and much of its international assets to become the top Permian producer by volume. It spent about $ 23 billion in the last 18 months buying Shell and Concho Resources (NYSE πŸ™‚ properties in Texas.

PRIVATE EQUITY’S ROLE

As European majors have exited, private equity firms are offering fuel for further deals. Oil prices at 14-year highs are kicking up asset values ​​and providing opportunities to exit long-held investments.

“With prices going up, and most of private equity focused on harvesting existing investments in this space, they are more likely to be sellers too, and so the independents will have those opportunities to look at as well,” said Lande Spottswood, partner at law firm Vinson & Elkins.

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