American Oil and Gas Reporter - June 2017 - 76

SpecialReport: Permian Basin Profile

Trends Point To Robust A&D Activity
By Chris Atherton

HOUSTON-The U.S. acquisition and
divestiture market suddenly has heated
up, led by a number of headline-grabbing
transactions in the Permian Basin, where
nearly $22 billion in deals were announced
during the first quarter of 2017. Buyers
such as Diamondback Energy, Noble Energy, Parsley Energy, WPX Energy, PDC
Energy, Callon Petroleum and ExxonMobil have invested significant capital
in recent months to acquire or expand
leaseholds in red-hot horizontal plays in
the Midland and Delaware sub-basins,
paying as much as $60,000 an acre.
Meantime, Continental Resources,
Newfield Exploration, Marathon, Gulfport
Energy, Jones Energy, Triumph Energy
Partners and others have made moves in
the SCOOP and STACK plays in Oklahoma, ranging from acquiring entire lease
positions to purchasing smaller bolt-on
acreage packages. In the Marcellus and
Utica, operators such as EQT Corp., Rice
Energy, Antero Resources and STL Resources have recently concluded acreage
and asset acquisitions.
It should be noted that all of these resource plays also have seen significant
regional deal activity in the midstream
sector. In fact, the numbers and total valuations of deals in the midstream have
equaled or exceeded those in the upstream
sector for some basins over the past year.
What comes next for the A&D market?
Will buyers and sellers continue to come
together to make deals happen, or will activity slow in the second half of 2017?
Several key trends have emerged that signal
a continuation of robust activity throughout
the remainder of this year and into 2018
for property deals valued in the range between $100,000 and $100 million.
In advising, facilitating, negotiating and
closing hundreds of transactions in every
U.S. basin, coupled with frequent interaction
with both sellers and buyers, we see some
important developments that are both shaping the A&D market and reflecting major
changes in the makeup, focus and strategies
of the upstream industry. For instance, private equity-sponsored management teams,
which typically have a strategy to exit positions within three-five years, have made
a mass exodus from the Permian over the
past 18 months. Among those that have
sold Midland and Delaware basin positions
76 THE AMERICAN OIL & GAS REPORTER

are Panther, Silver Hill, QStar, Silverback,
CP Exploration II, Ameredev, Bold Energy,
Double Eagle, Fortuna and Black Mountain.
Private equity-backed companies were
a backstop for the industry during the
downturn, committing new money for
deployment when the market was down
during the especially challenging days
of late 2014 and all of 2015. With these
companies opting to cash out as the Midland Basin, Delaware Basin, STACK
and SCOOP have gotten hotter, the trend
raises the question of what these companies do next: Get back into the most
active basins or go elsewhere? With the
big mass exodus of private equity-sponsored companies from the Permian, it
will be interesting to see if the number
of mergers increases, especially among
public companies. Additional consolidation is likely.
Win-Win Deals
One of the more interesting deals in
the Permian was Diamondback Energy's
$2.55 billion acquisition of Brigham Resources' Delaware Basin position, giving
Diamondback more than 76,000 net acres
of leasehold interests and 182,000 net
surface acres. Bud Brigham's teams have
continued to prove their wherewithal and
have been rewarded accordingly, from
successful runs in the Gulf Coast Basin,
followed by the highly successful move
to the Willison Basin and subsequent
sale to Statoil. Brigham's sale to Diamondback Energy is a win-win for both
sides.
Brigham certainly got a good deal,
but Diamondback did as well as the company looks to develop the leasehold
acreage in a basin with a tremendous
amount of upside. Diamondback can continue to develop the position and make a
lot of money doing it.
An interesting topic of conversation
amid A&D circles is who will make the
next big acquisition in the Permian. Is
another WPX Energy, PDC Energy, Diamondback, Parsley Energy or Noble
Energy capable of doing a $1 billion-$2
billion transaction right now, or are they
focusing solely on digesting what they
have recently acquired? Speculation centers on whether the timing is right to go
to market with a big Delaware or Midland
basin package if all these big players are

sidelined as they work to assimilate recent
acquisitions.
Generally, there is ample access to
capital in these lucrative basins, including
$100 billion in dry powder from private
equity groups and inflows of substantial
capital from public stock offerings and
Wall Street's eagerness to back proven
industry veterans in new ventures. There
is a lot of public and general investor interest in the oil and gas sector right now.
In addition to that, the companies that
are making these acquisitions are doing
it with their own stock without diluting
shareholder value.
Former chief executives of large-cap,
publicly traded companies are being handed blank checks by Wall Street to acquire
assets. Centennial Resource Development,
headed by former EOG CEO Mark Papa,
Silver Run II overseen by former Anadarko
CEO James Hackett, and Vantage Energy,
managed by Roger Biemans formerly of
Encana, and TPG Pace, managed by former Oxy CEO Stephen Chazen, are examples of emerging special-purpose acquisition companies that Wall Street has
been eager to back.
Accomplished oil and gas managers
who have retired or left larger companies
used to raise private capital first and then
identify and develop acreage. Now those
executives are able to go to the public
markets first and raise $1 billion or more
from the outset. The market is so confident
in their abilities that instead of getting a
commitment from a private equity sponsor
of $500 million, for example, and then
building a team and buying assets, Wall
Street is providing these special-purpose
acquisition companies with large amounts
of capital up front.
For example, the market provided
about $1.8 billion to Papa that allowed
Centennial Resource to acquire substantial
assets in the Delaware Basin and become
a public company from the outset. It is
an interesting concept that these heavyhitters are being rewarded for their past
hard work and experience to go out and
do it again. The trend will have a growing
impact on A&D market dynamics.
Asset Trading
Asset trading in the hot basins is becoming much more prevalent. Previously,
basin intelligence varied among operators
in the conventional industry, but that has
American Oil and Gas Reporter - June 2017

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