Permian continues to roll, but other areas pick up steam

Dec. 14, 2016

5 min read

PLS Inc. reports that halfway through Q4, US upstream deals have gained momentum across a diverse range of resource plays. Four plays outside of the ever-popular Permian (Bakken, Eagle Ford, Marcellus and Cotton Valley) have seen at least $500 million in deals recently. The Bakken notched its largest deal since 2014 when SM Energy agreed to sell its assets in McKenzie and Williams counties, North Dakota, to Oasis Petroleum for $785 million. That is the largest transaction in the play since Whiting Petroleum acquired Kodiak Oil & Gas in 2014 for $6.0 billion. Like many recent, large E&P deals, Oasis funded the majority of the price with an equity offering.

The Eagle Ford also saw one of its biggest deals of the year with WildHorse Resources buying a large position from Clayton Williams Energy for $400 million. The assets are in the eastern Eagle Ford area, a departure from other notable 2016 Eagle Ford deals concentrated in the western Eagle Ford. WildHorse additionally made two smaller recent deals in the same area as it gears up for an IPO. Both the Eagle Ford and Bakken provide opportunities to grab oily acreage at prices under $10,000/acre, far less than what is available in the Permian.

Naturally, even deals in other plays can't escape the shadow of the Permian, which now is running almost as many land rigs as the rest of the US combined (229 of 563 total per Baker Hughes).

In the Permian's Midland Basin, SM Energy is quickly deploying proceeds from the aforementioned sale of its Bakken assets to help fund the $1.6 billion acquisition of Midland Basin pure-play QStar LLC. These assets are in primarily in Howard County, where SM also bought Rock Oil for $980 million in August. The Delaware Basin also continued its streak of producing some of the largest deals in the upstream space. Along with some unrelated waterflood assets, Occidental picked up an additional working interest in its core Delaware Basin area from a series of private sellers for nearly $2 billion. The deal added 35,000 net acres at a cost of almost $42,000/acre. The acquisition price is further proof that core southern Delaware acreage, which started 2016 trading for notably less than in the Midland Basin, has caught up in value.

In addition to the oily Permian, Eagle Ford and Bakken, gas deals are playing a role in driving recent A&D activity, particularly in the Marcellus. EQT spent $683 million on two deals—a $513 million deal in West Virginia from TransEnergy and a $170 million deal in Pennsylvania from Antero Resources. Meanwhile, privately held Tug Hill took advantage of a bankruptcy buying opportunity to scoop up the West Virginia Appalachian assets of Stone Energy for $360 million.

East Texas and North Louisiana have also been popular buying destinations for gas assets. Castleton Commodities International recently emerged as the $1.0 billion buyer of Anadarko's prolific Carthage Field assets. With the Carthage buy, Castleton picked up significant legacy Cotton Valley vertical production with the opportunity to leverage upside from Haynesville and Bossier horizontal drilling.

While overall deal flow in Canada remained sluggish, the country saw a number of notable deals. Tourmaline made a $1 billion plus acquisition in the Montney and Alberta Deep Basin from Shell, which has been systematically trimming its global operations following the acquisition of BG Group. Unlike in the US, where activity is dominated by unconventionals, Canada also saw a number of significant conventional deals focused on light oil assets in Saskatchewan.

Internationally, Siccar Point deployed capital received from Blackstone and Bluewater Energy to acquire a portfolio of North Sea assets on the UK Continental Shelf from OMV for $875 million. Overall, private equity has played a much smaller role in international deal markets relative to the US, making this a unique deal.

While the upstream space saw plenty of activity, the most significant energy deal took place in oilfield services. After its tie-up with Halliburton was scuttled, Baker Hughes found a new dance partner in GE. The Boston-based conglomerate is merging its oil and gas division with Baker Hughes in a deal it values at $33.9 billion inclusive of net debt. Expected to close in mid-2017, the merged assets will be placed in a new publicly traded company owned 37.5% by existing shareholders of Baker Hughes and 62.5% by GE.

In the midstream space, gas transportation assets made up the most notable deals. The largest midstream deal in this period was the Dominion Resources dropdown of Questar Pipeline to its MLP Dominion Midstream Partners for $1.7 billion including cash, equity and assumed debt. At press time (Nov. 21), a blockbuster deal valued at $51 billion will likely take top honors for the largest 2016 energy deal with Sunoco Logistics acquiring Energy Transfer Partners, surpassing the prior high-water mark of the September 2016 $45 billion buy of Spectra Energy by Enbridge.