RayJ on 3Q16 A&D | Russell T. Rudy Energy LLC
Investment Firm Raymond James has issued their report on third quarter Acquisition and Divestiture activity in the upstream oil and gas industry. While the report contains a wealth of detail, and some excellent graphics, I would like to just touch on some of the major points.
In general, A&D activity in the third quarter, when compared with the first half of 2016, increased significantly. The number of deals seemed to be a response to stable prices and recovering rig counts, which apparently have instilled confidence in the future.
The number of deals over $20 million was basically flat, but the number of smaller deals was up 8% from the second quarter, with a total value of over $15 billion.
The Permian Basin was the epicenter of domestic A&D activity in the third quarter, accounting for almost half the transactions and two thirds of the value. The DJ Basin in the Rockies saw three deals for a total of $603 million. Conversely, The Ark-La-Tex, Eagle Ford in South Texas, and Gulf Coast were relatively quiet.
There was a clear preference for oil (vs. gas) weighted assets which represented 80% of the deals and acreage, and 77% of the value, in the third quarter. Public companies were involved in every transaction in which gas-weighted assets changed hands. The largest of these was Rice Energy’s $2.1 billion acquisition of Marcellus shale assets from private equity-backed Vantage Petroleum.
While private equity backed companies cashed out on $11 billion of property sales, public companies were either buyers or sellers in 64% of the deals and 90% of the value in the third quarter. There was a clear trend for companies to sell assets for stock (vs. cash), especially in the Permian Basin. Sellers were able to realize post-closing appreciation on stock received, due to strong prices and the market’s favorable perception of Permian properties.
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