Oil and gas merger activity rebounds in Q2 2019 as Occidental-Anadarko deal dominates
Energize Weekly, July 10, 2019
Oil and gas industry merger and acquisition (M&A) activity in the second quarter of 2019 saw a rebound from the first quarter’s historic lows reaching $65 billion for the period, according to DrillingInfo, an industry consultant and data analyst.
The quarter was dominated by the $57 billion acquisition of Anadarko Petroleum by Occidental Petroleum Corp., the fourth-largest deal ever for a production company. Excluding the Anadarko deal, which made up of 88 percent of the quarter’s activity on a dollar basis, the second quarter still showed a modest rebound.
Deals for the quarter tallied $7.6 billion compared with $2 billion in the first quarter of 2019. That was still off by more than half the $19 billion average quarterly activity in 2017 and 2018.
“Occidental dominated headlines this quarter with assertive maneuvering to beat out much larger rival Chevron and secure a deal with Anadarko,” Andrew Dittmar, a DrillingInfo M&A analyst, said in a statement. “While Anadarko’s assets span the globe, the deal is largely a play on U.S. shale —particularly in the juggernaut Permian which continues to power U.S. production growth.”
Most of the second quarter activity focused on the Haynesville shale, the Gulf of Mexico, and onshore U.S. conventional assets.
The quarter’s second largest deal was the $2.2 acquisition of Covey Park by Comstock Resources to expand its Haynesville operations. Covery Park was backed by private equity.
“The acquisition relied on the willingness of Dallas Cowboys owner and Comstock controlling shareholder Jerry Jones to open his checkbook and increase his total commitment by $475 million to $1.1 billion,” DrillingInfo said.
Jones’ support enabled Comstock to get over one of the major impediments for publicly traded companies in making acquisitions – “a near complete lack of Wall Street financial support,” according to DrillingInfo.
Both equity and bond issuances for the industry are on track to be at their lowest point in a decade and exploration and production (E&P) companies are focused on efficiently drilling their existing inventory. DrillingInfo is projecting a 20 percent cut in the average capital expenditures for the 50 top E&P companies this year.
“Wall Street, consistent with the message for E&Ps to live within cash flow, has cut off new investment dollars from public markets,” Dittmar said. “Smaller E&Ps, many of which were focused on growth and counting on continued funding have been particularly impacted. Some of these smaller companies could evaluate whether they would be better off private.”
The third largest acquisition of the quarter was Murphy Oil’s $1.4 billion purchase of LLOG Bluewater, a Gulf of Mexico property. It was followed by the $965 million deal in which Equinor obtained some Shell Gulf of Mexico assets.
Drilling Info’s third quarter forecast calls for deal activity to be slow but steady, with some smaller public E&Ps getting offers to go private. Companies will also continue to pursue alternative financing and even though some major producers want to grow their shape portfolios it still may be some time before they make a move.