Deals in the Permian helped the U.S. oil and gas mergers and acquisitions tally soar to $69 billion in 2016. The industry has been quick to adapt and secure primary drilling sites profitable at US$50 oil and buy existing production, Houston-based oil and gas research firm PLS Inc. has said in a report.
Last year, a total of 385 deals were made for a total value of $69 billion, compared with $32 billion in 285 deals in 2015, the research firm said, noting that the Permian region in Texas was the most active M&A site with $27 billion worth of deals last year, of which $9 billion were in the Midland sub-basin and $18 billion in the Delaware sub-basin.
“Certainly, the Delaware basin portion of the Texas Permian region ranks as 2016’s M&A play of the year as fresh equity capital poured into the area to buy Tier 1 acreage and production in areas like Reeves, Pecos and Loving counties, Texas to the tune of $18.0 billion,” PLS Managing Director Brian Lidsky said in the report.
Permian buyers secured 18,500 net drilling locations, implying a low cost to secure around 10.3 billion net barrels in future inventory at about $1.90 per barrel, which heralds good times for the future production growth from the region, PLS said.
“The breakeven economics of the vast majority of this acreage is well below $40 per barrel,” the research firm noted.
After the Permian, the next two most active M&A areas were the Marcellus with $6.7 billion worth of deals, recovering from a stalled 2015 activity, and the SCOOP/STACK play in Oklahoma, with $5.1 billion worth of M&As, and doubling each year since 2014. Down the list, Eagle Ford in Texas, the Niobara in Colorado, and the Bakken in North Dakota were lagging in M&A activity but are “now recovering with higher pricing ahead”, PLS said.
In terms of individual deals, the $4.4 billion which Range Resources spent to buy Memorial Resource Development in North Louisiana’s Cotton Valley gas play was the biggest single deal of the year. Related: Saudi Aramco IPO May Not Happen If Oil Prices Rise
Looking to 2017, PLS expects this year to be a strong year of continued M&A in the U.S. and anticipates the deal venues will expand “beyond the white-hot Permian to other prime oil resource plays including the Eagle Ford and Bakken”.
As regards gas deals, rising U.S. LNG exports would spur more deal activity closer to the Gulf Coast and revive activity in plays such as Haynesville, Barnett and the gas window of the Eagle Ford.
Two months ago, EIA data showed that the value of the average M&A deal in the fourth quarter was set to be the highest in years. In the third quarter, there were 93 M&A announcements across the U.S. oil patch totaling $16.6 billion, according to the EIA.
By Tsvetana Paraskova for Oilprice.com
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