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US oil ‘mini-majors’ emerge from shale patch deals and rising energy prices

Pump Jack is seen on a foggy day in an oil field near Bakersfield
FILE PHOTO: A pump jack is seen at an oil field near Bakersfield on a foggy day in California, January 17, 2015. REUTERS/Lucy Nicholson

March 15, 2022

By David French

HOUSTON (Reuters) – A group of oil and gas ‘mini-majors’ is emerging among US shale producers, born out of aggressive deals that industry players expect will collapse amid strong commodity prices and the European pullout US onshore production will accelerate.

According to interviews with a dozen sources, players including Devon Energy Corp, EQT Corp, Continental Resources, Pioneer Natural Resources and Diamondback Energy are poised for another round of negotiations.

“The conditions are in place for public companies, particularly large independent and mid-cap companies, to reshape through dealmaking and ensure they have adequate inventory levels to take advantage of this commodity price super cycle,” said Pete Bowden, Global Head of Energy and Power at Jefferies.

Potential targets include Colgate Energy Partners controlled by Pearl Energy Investments and NGP and Ameredev II backed by EnCap Investments. Both were formed after their private equity owners merged separate companies to make them more attractive to the aspiring mini-majors.

The trend mirrors the late 1990s when rapid mergers produced global supermajors BP, Exxon Mobil Corp and Chevron Corp. As then, this round of consolidation uses size to improve economies of scale. But this time, the mini-majors are mostly clustered in individual US shales.

Pioneer Natural increased its holdings in the Permian Basin with two deals last year and now produces more oil and gas there than Exxon. EQT has grown from its stronghold in the Marcellus Shale of Pennsylvania and West Virginia to become the largest natural gas producer in the United States.

Devon, the best-performing stock in the S&P 500 index in 2021, has also been looking for deals, according to investment bankers, after losing last year when Shell sold assets at the heart of the U.S. shale industry.

Devon has made at least two bids to buy Exxon’s production in North Dakota’s Bakken Shale, including one earlier this year in which the assets were valued at more than $6 billion, two sources said on condition of anonymity to discuss private information. Devon has split his assignments between Texas, Oklahoma, Wyoming and North Dakota.

Devon and Exxon both declined to comment. None of Continental, Diamondback, EQT and Pioneer have responded to requests for comment.

BIGGER IS BETTER

U.S. shale companies are acting to ensure scale to remain relevant to institutional investors who only invest money in the largest companies, along with world-class oil fields to take advantage of rising crude prices, Jefferies’ Bowden said.

“If you look at the big deals in recent years, every buyer has been right, securing A-1 locations at valuations that now look cheap with hindsight,” he said.

Volatile prices make it harder to close deals as buyers and sellers disagree on valuation. Still, the ties continue.

Last week, Whiting Petroleum Corp and Oasis Petroleum Inc announced a Bakken-focused combination. This year, PDC Energy Inc and Civitas Resources entered into agreements that, if all consummated, would yield four companies the majority of production in Colorado’s Denver-Julesburg Basin.

The role model for the mini-majors is ConocoPhillips, the former major that dumped refining and much of its international assets to become the largest Permian producer by volume. The company spent approximately $23 billion over the past 18 months to purchase properties from Shell and Concho Resources in Texas.

THE ROLE OF PRIVATE EQUITY

With the European majors exiting, private equity firms are offering fuel for more deals. Oil prices at 14-year highs are boosting assets and presenting opportunities to exit long-held investments.

“As prices rise and most private equity firms focus on reaping existing investments in this space, they will also be more likely to be sellers, and therefore independents will also be able to consider these opportunities,” Lande said Spottswood, a partner at the law firm of Vinson & Elkins.

(Reporting by David French in Houston; Additional reporting by Shariq Khan in Bengaluru; Editing by David Gregorio)

https://www.oann.com/u-s-oil-mini-majors-emerge-from-shale-patch-deals-soaring-energy-prices/?utm_source=rss&utm_medium=rss&utm_campaign=u-s-oil-mini-majors-emerge-from-shale-patch-deals-soaring-energy-prices US oil ‘mini-majors’ emerge from shale patch deals and rising energy prices

DUSTIN JONES

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