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US oil and gas deal value fell 88% in 1Q21, according to report

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Enverus has released its summary of 1Q21 US upstream M&A activity. The report shows US$3.4 billion in deal value was transacted during the quarter – an 88% decline from 4Q20.

This is the third year in a row US activity has started slow. Deals rallied in 2019 and 2020, and in 2Q21, activity has picked up with Pioneer Natural Resources’ US$6.4 billion buyout of privately held DoublePoint Energy.

1Q21 deal activity largely focused on production-heavy assets in legacy oil plays. Combined, the Bakken and Eagle Ford accounted for two-thirds of total deal value despite having only three significant deals across the two plays (two in the Bakken and one in the Eagle Ford). A strong rally in crude oil prices improving cash flow from these more developed areas likely helped spur the additional buyer interest.

Another distinguishing factor of 1Q21 activity was involvement by private equity firms. The top two deals of the quarter were both acquisitions by private equity-sponsored E&Ps: Grayson Mill Energy’s US$900 million buy in the Bakken and Validus Energy’s US$880 million Eagle Ford purchase. The next two largest deals were sales by Bruin E&P (formerly private equity-backed and then owned by creditors following a bankruptcy reorganisation) and Grenadier Energy Partners II, which was sponsored by private capital providers EnCap and Kayne Anderson. Then, the first day of 2Q21 opened with a large sale by Permian-focused DoublePoint Energy, which has at least four private sponsors, to Pioneer in the largest acquisition of a private E&P in a decade.

“After most of 2020’s activity was dominated by mergers between public companies, we are seeing private equity play a more prominent role in M&A markets in 2021,” said Andrew Dittmar, M&A analyst at Enverus. “Following years of heavy investment in unconventional resources, private E&Ps were having a challenging time finding exits either through sales or IPOs and had consequently tamped back spending on new deals. Now, in December 2020 and continuing into 2021, we have seen several prominent exits plus new investments from the private side of the industry.”

Along with the sales by private equity companies, 1Q21 also saw the first notable IPO of a traditional upstream production company since 2017, when Haynesville operator and private equity-sponsored Vine Energy successfully made its debut on public markets.

“Going forward, private equity should continue to play an important role in upstream M&A both on the acquisition side targeting legacy areas that are being sold as public companies narrow their focus and as potential targets for public companies to buy using their now higher-priced stock as payment like Pioneer did to buy DoublePoint,” added Dittmar. “Consolidating additional private companies will also help address concerns that a ramp up in rigs on the private side might again send crude markets into oversupplied territory. Pioneer already announced plans to reduce DoublePoint’s seven rigs to five by the end of the year.”

That is not to say that all public company consolidation is completed, though. While many of the marquee names in the public E&P space in the Permian found deals in 2020, there is additional room to combine operations among small and mid-size Permian names as well as in areas like the Appalachian Basin and Bakken that have yet to see anyone play a dominate roll as consolidator.


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Read the article online at: https://www.oilfieldtechnology.com/drilling-and-production/09042021/us-oil-and-gas-deal-value-fell-88-in-1q21-according-to-report/

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