ANDREW MASON DITTMAR, PLS INC., HOUSTON

PLS INC. REPORTS that as the market moves through the middle of Q3, a firm oil price floor above $40/bbl is drawing in some of the largest and most notable names in the upstream space. Anadarko and EOG both made major asset grabs in the last month, while Apache chose this time to unveil a new multi-pay play in the Permian Basin. In regional terms, the Permian steamroller continues to flatten the rest of the globe. For the month that ended Sept. 16, the Permian accounted for 57% of total US upstream deal value (down somewhat from 64% the previous month) and 78% of the US onshore.

Heavyweight EOG made a splash with the acquisition of venerable Yates Petroleum for $2.45 billion. The buyout of the New Mexico producer adds nearly 186,000 net acres to EOG's existing position in Lea and Eddy counties New Mexico and doubles the company's premium drilling locations in the Delaware to 3,450. At less than $10,000/acre, the acquisition is attractively priced relative to recent buys on the Texas side of the basin. Combined with the Centennial buyout by Mark Papa's Silver Run, EOG-related teams have now invested more than $4 billion in the Delaware Basin in the last two months and helped make it the hottest play in North America. While EOG is betting big on the Delaware, Yates is also endorsing EOG as a leader in shale development by taking EOG equity in the deal and certainly expects to share in the upside.

Apache is taking a different route to find success in the Delaware Basin and potentially expanding the productive portion of the basin. The company unveiled it leased 20% of Reeves County and built a 300,000-net-acre-plus position in the southern portion for $399 million. Dubbed Alpine High, the new position targets liquids-rich gas from the Barnett and Woodford with secondary development potential in Delaware Basin stalwarts Wolfcamp and Bone Spring. Apache was able to quietly build its position with extensions into Pecos and Culberson counties along the base of the Davis Mountains, at an average of $1,300/acre over the last 18 months. With 75 Tcf of rich gas and 3 Bbbl of oil resource in place, there is sufficient inventory for a six-rig program to run for 20 years.

While EOG and Apache build out their Delaware positions, Anadarko struck a rare Gulf of Mexico deal with the acquisition of the deepwater assets of Freeport-McMoRan for $2.0 billion. Anadarko was able to double its stake in the Lucius development and add a number of other attractive producing assets for $21,250 per daily boe. The assets are expected to generate $3.0 billion in free cash flow over the next five years, for a cash flow multiple of 40 months. Notably, the impact of the Delaware Basin can be felt even far out in the GOM, as Anadarko plans to use its new cash flow to accelerate development there and in the DJ Basin.

International markets primarily saw assets change hands in smaller deals, with few transactions with disclosed values breaking the $10 million mark. One exception was BHP Billiton's sale of a stake in its Scarborough gas development project offshore Western Australia to Woodside Petroleum for $250 million plus a contingent payment of $150 million once FID is reached. Bringing the company on board may signal a willingness to look at development options other than floating LNG for Scarborough, such as a subsea pipeline to an existing onshore LNG facility.

The largest recent deal took place in the midstream space when Houston-based Spectra Energy agreed to sell itself to Canada's Enbridge for $45 billion. Once closed, the tie-up will leapfrog Kinder Morgan to become the largest midstream company in North America. The buyout adds critical gas infrastructure to Enbridge's liquids-weighted portfolio including transport lines from the Marcellus to Gulf and East coast markets. Following the acquisition, gas-focused assets will contribute nearly half of EBITDA, up from 22% previously. Enbridge is paying a healthy 15.6 times EBITDA, reflecting the quality of Spectra's underlying asset base.

Another highlight is Noble Energy successfully pulling off a rare IPO by spinning out its midstream assets serving the Delaware and DJ Basins in a new publically traded MLP. The offering of Noble Midstream Partners LP ended up priced at $22.50/unit, above the expected range, and opened trading $4 higher at $26.50, showing that the hunger for yield is alive and well.

Rounding out the energy markets in the OFS space, auction powerhouse Ritchie Brothers bought heavy equipment auction house IronPlanet for $759 million. In Canada, High Arctic Energy acquired Tervita and Rubicon bought out Logan International as the industry continues to consolidate.

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Deal market strength: Anadarko, Apache and EOG all pull the trigger on buyside this month

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