In today’s depressed commodity price environment, participants in the Oil and Gas industry are keeping a watchful eye on the A&D and M&A markets. By any measure, 2015 YTD acquisitions are below the expectations of most analysts. The $11B transacted in the U.S. through August of this year is down 70% from the same period in 2014 according to BMO Capital Markets. Industry experts see several emerging catalysts that are likely to drive a significant increase in deal-making in the coming months:
- E&Ps bolting on core acreage at reduced cost: E&Ps with strong balance sheets are looking at potential purchases that would add to their core positions at a fraction of the cost of similar acreage and production last year.
- Making long term investments in out of favor plays: Acquisitive E&Ps with a long-term focus are eyeing positions in higher-cost developing areas which are likely to become economically viable when commodity prices recover.
- Enormous Private Equity buying power: Private equity funds have access to $300B of buying power to deploy for asset purchases and energy investments according to a recent Wall Street Journal article citing Ralph Eads, Global Head of Energy Investment Banking at Jefferies Group.
- Shoring up balance sheets: Some companies with higher leverage are looking to divest of some holdings to lower their debt ratios. In some cases they are becoming motivated to do so as their financial metrics threaten to surpass levels stipulated in their existing debt covenants.
- Moving focus to the core: As almost all E&Ps have lowered their capex budgets, many are considering selling non-core assets so that they can focus their remaining investments on retaining scale in their core AOIs.
- Decreasing benefit of hedges: Many E&Ps benefited greatly over the last few months from their hedging programs. Operators continued to produce and sell hedged production at realized prices that were significantly higher than spot. As these hedges are rolling off, companies are selling at average realized prices that are approaching the depressed spot price levels.
- Fewer sources of debt and equity financing: A&D and M&A activity has been slowed, in part, by a significant inflow of debt and equity financing to oil and gas in 1H2015. The successful placement of a large volume of debt offerings and secondary stock offerings in the first half of the year provided a key source of funding, even as the financial performance of many E&Ps waned. Debt and equity deals in public markets have decreased significantly in the last few months, indicating that this source of funds is now limited or too costly for many companies. Dealogic reported that there was $21B of equity financing raised in US and Canadian O&G companies from January through July. Only $333 million was raised in August. On the debt side, S&P reported that the oil and gas sector has about $242B in rated debt scheduled to mature between now and 2020. $124B of this is speculative grade.
- Fall 2015 Bank Borrowing Base Redeterminations: Many E&Ps took new bank loans, and increased the utilization of their existing credit revolvers in late 2014 and early 2015. This fall’s borrowing base redeterminations are likely to pinch these credit facilities by lowering credit lines.
- Potential for additional bank loan regulation: Banks had already tightened lending practices following an April warning from the Treasury Department’s Office for the Comptroller of the Currency (OCC) about the emerging risk of banks loans to oil & gas companies. Additional loan regulations from the Feds may be forthcoming this fall as multiple federal agencies including the OCC complete a regulatory review of the risks of outstanding loans with the backdrop of falling reserve valuations.
DI A&D: get access to 60,000 eyeballs in 5 minutes
Drillinginfo is uniquely positioned to facilitate oil and gas deal making. DI has more than 30,000 subscribers from over 3,000 companies including E&P companies, A&D specialists, private equity firms, and other O&G stakeholders. The DI A&D link is visible to users immediately at login, and it is among our highest trafficked areas. Even better news? DI does not charge a commission or brokerage fee to sellers. Listing on DI A&D is a free service to anyone, whether or not they are a Drillinginfo subscriber.
How do I list my deal?
Subscriber Listing Instructions
If you are a Drillinginfo subscriber, please login and select the A&D panel on the first screen:
You will be directed to a panel that includes a deal entry form on the right side. Click on “Enter a Deal”.
Now, follow the simple steps below to fill out the form:
Step 1: Give a descriptive name for your deal. Entering a descriptive name, such as company name, type of deal, location of deal, quantity of acreage, oil and/or gas helps potential buyers get familiar with the deal very quickly. It is a first line of promotion shown in the list and on hover window in the map view.
Step 2: Enter your contact information and highlights of the deal.
Step 3: Enter Location as accurately as possible. Wells will also be geo-located on the map based on API#.
Step 4: Select your Deal Type: Producing, Drilling Prospect, or Acreage/Minerals.
Now, hit “Create Deal” and your deal instantly becomes visible on the buyer’s list as well as the map view.
While there are selections on the form that allow you to include much more detail about your prospect, these four simple steps will get your prospect quickly listed and visible for potential buyers.
Non-Subscriber Listing Instructions
Non-subscribers can always list their deals for free on DI A&D. You can follow this link and follow the same instructions as above. If you have a deal sheet that you want us to upload for you, or if you have deal details that you would like us to enter, we are always here to help at [email protected].
What do you think? Leave a comment below.
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