The last two energy crises that have threatened hundreds of energy companies with bankruptcy have rewritten the playbook of oil and gas mergers and acquisitions. Previously, oil and gas companies made many aggressive tactical or cyclical acquisitions following a price crash after many distressed assets became available on the cheap. However, the 2020 oil price crash that sent oil prices into negative territory saw energy companies take a more restrained, strategic and environmentally focused approach to closing M&A deals. So it’s no surprise that big oil executives have been somewhat coy after the latest wave of mergers and acquisitions turned into a disaster for acquisition companies.
According to data published by the energy analysis firm Enverus, US oil and gas transactions contracted by 65% over one year to 12 billion dollars in the last quarter, a far cry from the $34.8 billion recorded in the corresponding period last year, as high volatility in commodity prices left buyers and sellers clashing over the value of assets .
“Soaring commodity prices following Russia’s invasion of Ukraine temporarily stalled mergers and acquisitions as buyers and sellers disagree on asset values“said Andrew Dittmar, director of Enverus Intelligence Research.
Enervous reported that transactions by private equity firms rose significantly in the first quarter as they bought assets that oil companies considered non-essential to their development plans. These assets tended to be outside of oil-prolific areas like the Permian Basin of West Texas and New Mexico.
“Private equity still has some dry powder for deals. They use it to target assets labeled as non-core by public companies. Once you get out of the heart of the Permian Basin and a few other key areas, the competition for bids lessens, and these positions are often available at buyer-friendly prices. That said, private equity is still a net seller in the space and will likely remain so for the foreseeable future. given the number of investments in progress and the duration of deployment of this capitalDittmar remarked.
Yet deals in the U.S. oil and gas industry remain alive and well, with energy executives still striking big deals. Here are the most notable.
EQT Corp buys Rival THQ Appalachia and XcL Midstream assets for $5.2 billion
In May, the Pittsburgh, Pennsylvania oil and gas producer EQT Corporation (NYSE: EQT) unveiled a plan to produce more liquefied natural gas (LNG) dramatically increasing natural gas drilling in Appalachia and around the nation’s shale basins, as well as the capacity of export pipelines and terminals, which he said would not only enhance U.S. energy security, but would also help break the global dependence on coal and countries like Russia and Iran.
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Well, EQT is moving fast to achieve its LNG ambitions: confirming earlier speculationEQT Corp announced on Tuesday that he has agreed to acquire The upstream assets of THQ Appalachia and Intermediate XcLcollecting and processing assets for a combined $5.2 billion in cash and stock,
Owned by private gas producer Tug Hill Operating, THQ Appalachia and XcL Midstream are backed by capital commitments from funds managed by Quantum Energy Partners. CEO and founder of Quantum Energy Partners Wil VanLoh is expected to join EQT’s board after the merger. EQT disclosed that the acquired assets include approximately 90,000 base net acres offsetting its existing head lease in West Virginia, producing 800 million cfe/day and expected to generate free cash flow at average natural gas prices above approximately $1.35/MMBtu over the next five years. The company also doubled its buyout program to $2 billion and said it was increasing its debt reduction plan by the end of 2023 to $4 billion from $2.5 billion. .
EQT has been one of Shale Patch’s most active dealmakers, buying up assets and businesses around the Marcellus in a bid to shore up the company’s position. Last year, the company bought rival producer Marcellus Alta Resources for $2.92 billion. EQT CEO Toby Rice’s gamble paid off this year as natural gas prices hit their highest level in more than a decade.
Sitio Royalties to Merge With Brigham Minerals in $4.8 Billion Deal
Oil and gas company and royalty company Sitio Royalties Corp.. (NYSE: STR) is heading towards a merger with Brigham Minerals (NYSE: MNRL) in an all-stock deal with an aggregate enterprise value of approximately $4.8 billion, creating one of the largest publicly traded mining and royalty companies in the United States.
The agreement will become one of the most important combinations in the American oil sector this year, and comes in a period of high oil prices.
Like the rest of the industry, Sitio and Brigham have seen their sales and earnings grow at a healthy pace due to rising oil prices. The merger of the two companies will allow the new entity to achieve significant economies of scale and become a leader in the mining rights sector.
The merger will create a company with complementary high-quality assets in the Permian Basin and other oil-focused regions. The combined company will have approximately 260,000 net royalty acres, 50.3 net line-of-sight wells operated by a diverse and well-capitalized set of exploration and production companies and pro forma net production of 32, 8,000 boe/day in the second quarter.
The deal is also expected to yield $15 million in annual operating cash cost synergies.
Sitio and Brigham shareholders will receive 54% and 46% of the combined company, respectively, on a fully diluted basis. Sitio Royalties recently reported second-quarter net income of $72 million on revenue of $88 million.
Mineral owners receive a 12.5% to 20% reduction in the oil and gas pumped from their lands in the form of royalty payments. They don’t control the pace of development, but neither are they responsible for drilling costs or overhead, which means they directly reap the benefits of high commodity prices.
By Alex Kimani for Oilprice.com
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