Energy Analytics Financial Services

Permian gears up for M&A bonanza as PE steers toward the exits

byAndrew Dittmar

This article originally appeared in the Enverus Weekly Market Pulse Report.

Last week’s $4.3 billion acquisition of three Midland Basin-focused EnCap portfolio companies by Ovintiv was the biggest Permian deal since ConocoPhillips bought Shell’s assets in September 2021 and kicked off 2Q23 M&A with a bang. Ovintiv shareholders didn’t seem to mind the scale and price tag of the transaction in the least, as the company’s stock rallied 12% after the deal was announced and finished the week up 8%. See more in Enverus Intelligence® | Research’s Deal Insight report.

The sales come on top of an already strong market for private equity sellers in the Permian with the late 2022 sales of FireBird Energy and Lario Oil & Gas assets to Diamondback Energy, plus EnCap’s sale of Advance Energy Partners to Matador Resources earlier this year. Private equity firms are hoping public company enthusiasm for deals remains intact, as last week saw a torrent of media reports that firms were launching processes. EnCap will be looking to continue its sales streak by taking Novo Oil & Gas and Forge Energy II into the market. Both operate in the Delaware Basin with Novo focused on the northern and western portions of the play while Forge operates in the south. Peer NGP will also be looking to cash in, per reports that it is marketing Tap Rock Resources I and II, also in the Delaware, and Hibernia Resources III in the southern Midland Basin. The sales efforts are likely motivated by the confluence of strong pricing for inventory — more than $2 million per location for the best drilling opportunities — and an optimal time in the lifecycle of these companies to exit. While these sales processes were almost certainly planned ahead of OPEC’s surprise production cut a week ago, that adds further fuel to the fire and increases the probability of $100-plus oil this year.

These firms aren’t necessarily exiting oil and gas, with Reuters also reporting that EnCap is looking to raise another upstream fund for the first time in years. However, whether because of a lack of opportunities in maturing shale plays or a lack of capital, the portfolio of private equity E&Ps isn’t being replenished at nearly the pace M&A is drawing it down. The result is a far more consolidated Permian Basin and other areas where the rich get richer as large companies with significant cash are in the best position to compete for deals.

The next logical step after private consolidation is deals among the public companies themselves. Even the biggest Permian independent isn’t immune to buyout rumors as, along with the PE-focused M&A talk last week, The Wall Street Journal reported that Pioneer Natural Resources had held some preliminary talks to be acquired by ExxonMobil. All of this seems to point toward an industry that looks increasingly like it did before shale in the context of the biggest companies and majors holding the best, lowest-cost resource. Watching that unfold should certainly provide plenty of fireworks along the way.


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Andrew Dittmar

Andrew Dittmar is a Director on the Enverus Intelligence® team. Andrew specializes in deal analysis, research and valuations for upstream assets. He focuses largely on placing individual deals into context around broader industry trends and outlooks, and has been quoted by Reuters, CNBC, the Wall Street Journal, Houston Chronicle and other media outlets. Andrew holds a BBA in Finance from Texas A&M University and a JD from The University of Texas School of Law.

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