SURVEY OUTLINES WHAT PRODUCTION BUYERS ARE SEEKING IN THE U.S.
Lynn Taggart
Energy Sale Services Inc.
Oklahoma CityVictor A. Burk
Arthur Andersen & Co.
HoustonDonald A. Murry
University of Oklahoma
Norman, Okla.
The significant volume of U.S. oil and gas producing properties being sold or for sale is commonly noted by industry analysts.
The trade press frequently reports large transactions. However, smaller transactions generally go unreported. Consequently, there is a sizable, nearly invisible market in which many transactions occur.
One prevailing view of this market is that properties tend to move down the tier of investors, with large companies selling to smaller companies. Many sellers break down their holdings into smaller valued lots in order to sell them, in the belief there are more active buyers seeking properties at the lowest values, without clear indication of what potential buyers seek.
Reports of purchases and sales usually describe the specifics of deals that have occurred. However, information gleaned from a survey by Energy Sale Services, Inc. (ESSI) in conjunction with Arthur Andersen & Co. sheds new light on a large group of prospective participants in future deals whose interests, until now, had been virtually unknown.
This previously unresearched group consists of potential buyers seeking properties to purchase who have revealed their acquisition criteria.
This group has some surprising characteristics. The buyers who call themselves very active are mainly seeking properties in the $1-10 million price range. This same group also has the largest investment pool at its disposal.
In general, potential buyers are a very diverse group. Although most of them are corporations, their interests are even broader.
THE SURVEY
In October 1992 ESSI and Arthur Andersen mailed surveys to about 7,000 individuals and companies industry wide in the first phase of development of data regarding market participants and their purchase requirements. The analysis developed to date covers the first 750 respondents with a current search for properties to buy.
Respondents included corporations, partnerships, trusts, and individuals in 35 states. They currently seek properties in 28 U.S. producing areas, Canada, and other international areas.
The respondents were asked to classify themselves as very active (55%), moderately active (31%), or somewhat active (14%) in pursuing acquisition,
The very active buyers seek higher valued properties. This group also gave strong indications about the types of sales methods in which they would participate. Almost all of the very active respondents would participate in a negotiated sale. By contrast, only 21% said they would participate in an auction requiring minimum bids.
Not surprising is the fact that of the first 750 completing the survey, most respondents (60%) said they seek properties of less than $1 million in value. Only 14% seek property packages exceeding $25 million.
BUYERS, SELLERS
Probably the most unexpected finding of the survey was the estimated total value of properties being sought by potential buyers completing the questionnaire.
The 750 respondents were seeking properties with a maximum potential value of more than $11.5 billion. Those who said that they were very active represented 79% of potential investment funds.
The respondents' recent market activities add credibility to this claim.
Eighty-one percent of respondents had bought properties in the previous 6 months for a total value of about $1.9 billion. Although the size of the total market cannot be determined from this sample, these results indicate it probably is larger than most industry observers have estimated.
The same potential purchasers also are active sellers. This was not totally unexpected because investors in oil and gas properties today are dynamically adjusting their portfolio of properties.
Two hundred fifty-seven (34%) of the respondents have sold properties in the past 6 months for a total value of more than $1.5 billion. Moreover, nearly 200 of the respondents who are seeking properties to buy have properties for sale.
More than 90% of the respondents sought primary production. Nearly one-half sought secondary production, recompletions and workovers, and stripper production. Almost all sought gas and oil properties, showing no preference.
In terms of geographic areas of buying interest, the five most frequently mentioned areas were West Texas/Southeast New Mexico, Midcontinent, East Texas, South Texas, and Hugoton in that order.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.