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Global Energy Advisory – 17th August 2018

Tanker

The Permian once again reaffirmed its status as the star shale play in the United States after
Diamondback announced it had inked a merger deal worth $9.2 billion with peer Energen. This is the second Permian deal for Diamondback within a week, after it announced the acquisition of Ajax Resources for $1.2 billion.

The Energen deal—all-stock—was prompted by an activist investor, Corvex Management, which has been vocally unhappy about the company’s weak shareholder returns. This aspect of the deal highlights an ongoing trend in the star shale play: despite its coveted status, not all Permian acreage and not all Permian players are created equal. Those with the means to produce oil more cheaply are now buying those that are finding it hard to keep up.

It looks like a good year to sell. Earlier in 2018, Concho Resources bought Permian sector player RSP Permian for $8 billion. Supermajor BP also entered the Permian this year with the $10.5-billion acquisition of BHP Billiton’s shale oil assets that include considerable Permian acreage. The fact that this was BP’s biggest deal in nearly two years highlights the still high appetite of drillers in this part of Texas.

Meanwhile, production forecasts for the Permian remain robust. A recent one from IHS Markit saw Permian crude oil output rising to 5.4 million barrels daily by 2023 from about 3.4 million bpd now. This would certainly increase the United States’ weight in global…

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