US 2Q upstream deals hit $24bn: Enverus

The value of US oil and gas mergers and acquisitions soared to $24bn in the second quarter, almost three times that seen in the first three months of the year, as the Permian basin regained its leading position for deals.

Public companies' need to secure quality drilling inventory drove the upturn, according to Andrew Dittmar, director at consultancy Enverus Intelligence Research, as the number of remaining opportunities dwindles. "That in turn is driving higher valuations on the remaining assets," Dittmar said.

One exception to the Permian revival was Chevron's $6.3bn acquisition of Denver-Julesburg (DJ) producer PDC Energy. That contributed to an increase in the average size of deals to $1.2bn in the second quarter, more than double the first quarter's average.

Six deals exceeded $1bn in the second quarter, of which five involved assets in the Permian. Four of the six were buyouts of producers funded by private equity that operated solely in the Permian.

EnCap Investments was the biggest private equity seller after it unloaded four portfolio companies for a total of $5.8bn. Next up was NGP Energy Capital which sold a combined $4.7bn of Permian assets.

"The formation of new private-equity-backed E&Ps hit its peak in 2017 and now, six years later, those investments are being unwound via sales to public companies," said Dittmar. "For those that invested in the Permian basin, the returns are likely substantial."

The value of undeveloped inventory has climbed in the past year, according to Enverus, and public independents are more likely to pay for assets on the margins of the basin rather than focusing on the core.

"Each sale seems to bring a higher valuation than the one before," said Dittmar. "With just about 20 private companies left in the Permian that have more than 100 net locations, and many of those unlikely to sell, we anticipate this trend will continue."

By Stephen Cunningham