In 2013, the US A&D Market has been predictably focused on horizontal opportunities as investors and operators continue to look beyond brent crude and increasingly toward US shale plays.
But there’s one problem here.
Everyone is competing to produce developed properties in known oil producing regions. As such, acquisition prices have been medium to high (relative to historic rates), and the jury is out on which deals will prove to be economic.
For operators who have sold, the payoff has been great. But with such fierce competition where everybody is looking at the same available deals, deciding where to go is a scary question.
No Brent Crude, Know Your Options
The options don’t reveal an obvious winner and if you are looking to invest in oil and gas in the US, they are widely varied. But the current trends seem to fall into one of four categories, all of which have their own risks and benefits:
|Conventional development in producing regions||Lower competition||High geologic risk, less available capital|
|Unconventional development in producing regions||Seemingly huge upside, high availability of capital||Fierce competition threatens economics, unknown upside and high cost|
|Dry gas properties||Lower competition – prices coming down||When will gas prices go up? Medium risk|
|Offshore US||Currently low competition||High geologic and operations risk|
As it was in the beginning, finding and developing AND investing in oil and gas production is high risk. In addition to known geologic and operational risks, the complexity of today’s A&D environment is at an all-time high. We have never seen competition like this over such a finite amount of quality available acreage.
In large ($500M and up) and mid-level deals ($100M to $500M), demand is high. The race for shale acreage has E&P companies competing with each other, as well as enormous private equity dollars. Making things worse, they are all looking at the same deals, which are typically not in the highest quality acreage.
When everything shakes out, the winners will be larger entities that successfully partner with smaller operators who are sitting on high quality acreage, but can’t deploy enough capital to maximize their holdings. As for “divestures”, operators with high grade acreage can now command the highest prices AND the best operators. In this market, proving you can maximize returns in every acreage grade is a strong bargaining chip.
However, with such a flood of money targeting onshore US plays and so few options on the table, the observed risks (as always) is center on economics. And there are several questions:
- Where is the upside?
- Is there enough upside to make current market prices work?
- Will the well-level economics work?
- If they do work, what technological assumptions can we make?
Very few deals have obvious positive answers to these questions. The vast majority end trending downward.
So, again, where do you go?
Rock Quality isn’t Everything
I work with oil companies every day, all of which are evaluating opportunities, planning development and designing experiments. They are all trying figure out where to go and how to get the most out of the ground.
**Captain Obvious Warning**
Success comes down to rock quality and your ability to learn fast.
But the not so obvious truth is that rock quality is hard to assess. Formations previously considered uninteresting have in some recent cases proven to be the key to good production.
Thankfully, our industry is filled with true geniuses.
But even with a team of top oil and gas professionals, everything can look good and bad at the same time when the majority of operators employ similar best practices. Yet somehow, the data shows that certain operators can maximize returns, regardless of the acreage quality.
Speed Like Keanue Reaves (Minus the bad acting skills)
In a world where your top competitors are all looking at the same data and using the same tools, your ability to win comes down to speed. Period.
The speed to make good decisions means using data and tools in new ways. Teams that identify potential upside correctly and are able to think past current “trends” to learn what works best in YOUR rock will win every time.
Our philosophy at Drillinginfo is to help you make better, faster decisions. To that end, we think all of the deals on the market and relevant data should be in one place. That way, users can identify potential interests, do preliminary information gathering, research and assessment on one workstation in minutes. Our sole focus is to help you unlock to the secrets to YOUR rock, as fast as possible.
Heck, if that doesn’t sound like time travel compared to the workflows in the field today, I don’t know what does! 1.21 gigawatts! Great Scott!
That is the goal we are striving for with MarketPlace. And given our track record, I think we’ve got a pretty good shot at hitting that clock tower at precisely 10:04 p.m.
What do you think ultimately drives oil and gas A&D success? Is it the ability to change and adapt to new data on a dime, or something else? Please leave a comment below.
Latest posts by Adam Farris (see all)
- Back to the Brent Crude: Why you Need 1.21 Gigawatts to Win at A&D - October 1, 2013
- Buying and Selling Oil and Gas Properties, A Quick Guide - February 1, 2013