With a large oil and gas deal possibly taking shape between Exxon Mobil Corp. and Pioneer Natural Resources Co., industry analysts said chatter around mergers and acquisitions has increased as the first-quarter earnings reporting season approaches.
"M&A is going to dominate," Jefferies LLC oil and gas analyst Lloyd Byrne said on an April 11 webinar discussing trends in the oil and gas industry.
Byrne said oil and gas producers need to get larger to gain inventory and wring the most savings out of exploration and production (E&P) activities.
"There are just a lot of management teams and boards and stuff that don't really want to go away," Byrne said. "The transactions that the markets have been talking about and a lot of news agencies have been talking about make sense. If you can take costs out and get more inventory, especially if you're a North American company, I think it continues."
Truist Securities Inc. analyst Neal Dingmann expected M&A in the oil and gas patch to be elevated in 2023 "due to [private companies] monetizing positions, public E&Ps boosting inventory, valuations remaining wide, and the continuation of larger scale drilling and completion."
Permian hotbed
The Permian Basin is expected to be the liveliest location for 2023 oil and gas deals, analysts agreed. Charles Johnston, a senior analyst for high-yield and investment-grade E&Ps at research firm CreditSights, said the splintered nature of asset ownership in the basin makes it ripe for consolidation.
"Large producers will continue looking to shore up their inventory by gaining access to the highest quality acreage and creating efficiencies through scale," Johnston said in an April 11 note. He cited Ovintiv Inc.'s recently announced $4.3 billion deal for three private Permian drillers and the rumors around the Exxon-Pioneer combination as examples.
Ovintiv said expanding its oil assets was the primary reason for its deal. Representatives for Exxon and Pioneer declined to comment on market speculation.
CreditSights' top pick for a Permian private driller as M&A target was Endeavor Energy Resources LP. The company holds 360,000 net acres in six counties in the Midland Basin portion of the Permian, where it runs 15 rigs and four frack crews, and reported producing 278,800 barrels of oil equivalent per day in 2022.
Johnston pegged Endeavor's value between $15.4 billion and $23 billion, which could place it out of reach for some potential buyers. He said the two leading candidates to make a deal are Exxon or Pioneer.
Public drillers in the Permian that are likely candidates for a corporate takeout include Permian Resources Corp., with an enterprise value of $8.2 billion; SM Energy Co., valued at $4.8 billion; Matador Resources Co. at $7.2 billion; and Callon Petroleum Co. at $4.5 billion. Enterprise value is roughly the sum of a company's stock market capitalization, cash and debt. The metric serves as a proxy for how much an acquisition could be expected to cost the buyer, assuming no premium is paid.
Potential big deals in Haynesville Shale
Dealmaking in the Haynesville Shale, which lies on the Texas-Louisiana border close to Gulf Coast LNG export terminals, should stay active, although the number of available deals is shrinking, CreditSights said.
CreditsSights noted two large private drillers that could be targets: Aethon Energy Management LLC and Rockcliff Energy LLC, the third- and fifth-largest producers in the play. "Aethon's acreage could fit with any of the largest producers [Comstock Resources Inc., Chesapeake Energy Corp., Southwestern Energy Co.] and [it] was rumored to be exploring a $6 billion sale in early 2022, before it was reported to be exploring an IPO in June with a valuation of ~$10 [billion]," CreditSights said.
Utica Shale's potential deal is Gulfport
The one public company likely to be bought by a private operator is Gulfport Energy Corp., one of the top drillers in Ohio's Utica Shale. The state's largest natural gas producer, Ascent Resources LLC, is the top candidate to buy Gulfport, according to CreditSights.
"[Gulfport], which emerged from bankruptcy in May 2021, and has been rumored for sale, seems to be an ideal partner for Ascent," CreditSights said. A merger would allow Ascent to go public without an IPO while offering Gulfport float, the research firm said. "Float" refers to the number of shares available for the public to buy or sell.
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