U.S. oil 'mini-majors' emerge from shale patch deals, soaring energy prices

PDC Energy

15/03/2022 12:00

By David French
    HOUSTON, March 15 (Reuters) - A group of oil and gas
"mini-majors" are emerging among U.S. shale producers, built
from aggressive dealmaking that industry players expect will
accelerate on strong commodity prices and the retreat of
Europeans from U.S. onshore production.
    The players, including Devon Energy Corp  DVN.N , EQT Corp
 EQT.N , Continental Resources  CLR.N , Pioneer Natural
Resources  PXD.N  and Diamondback Energy  FANG.N , are poised
for another round of dealmaking, according to interviews with a
dozen sources.
    "The conditions are there for public companies, in
particular large independents and mid-caps, to use dealmaking to
reshape themselves and ensure they have adequate inventory to
capitalize on this commodity price supercycle," said Pete
Bowden, global head of energy and power at Jefferies.
    Among potential targets are 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 put separate companies together to make
them more attractive to the emerging mini-majors.  urn:newsml:reuters.com:*:nL8N2SV07I
 urn:newsml:reuters.com:*:nL8N2UT6GW
    The trend echoes the late-1990s, when rapid combinations
spawned global supermajors BP  BP.L , Exxon Mobil Corp  XOM.N 
and Chevron Corp  CVX.N . Like then, this round of consolidation
uses size to improve economies of scale. But this time, the
mini-majors are bulking up largely in individual U.S. shale
formations.        
    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 become the largest natural gas producer in
the United States from its stronghold in the Marcellus shale of
Pennsylvania and West Virginia.
    Devon, the best-performing stock in the S&P 500 index in
2021, also has been hunting for deals, say investment bankers,
after losing out last year when Shell  SHEL.L  sold assets in
the heart of the U.S. shale industry.  urn:newsml:reuters.com:*:nL4N2QM27P 
    Devon has made at least two overtures to buy Exxon's
production in North Dakota's Bakken shale, including one earlier
this year which valued the assets at more than $6 billion, two
sources said on condition of anonymity to discuss private
information. Devon has spread its bets across Texas, Oklahoma,
Wyoming and North Dakota.  
    Devon and Exxon both declined comment. None of Continental,
Diamondback, EQT, and Pioneer responded to requests for comment.
    
    BIGGER IS BETTER 
    U.S. shale companies are acting to secure the scale to
remain relevant to institutional investors that only put money
in the biggest companies, along with top quality oilfields to
take advantage of surging crude prices, said Jefferies' Bowden.
    "If you look at the big deals done in the last couple of
years, every buyer has been proven right, in securing A-1
locations at valuations which now appear cheap, with the benefit
of hindsight," he said.
    Volatile prices make it tougher to strike deals as buyers
and sellers disagree on valuation. Still, tie-ups continue.
    Last week, Whiting Petroleum Corp  WLL.N  and Oasis
Petroleum Inc  OAS.O  announced a Bakken-focused combination.
This year, PDC Energy Inc  PDCE.O  and Civitas Resources
 CIVI.N  struck deals which, if all are consummated, would give
four companies most of the production in Colorado's
Denver-Julesburg basin.  urn:newsml:reuters.com:*:nL3N2VA34U  urn:newsml:reuters.com:*:nL2N2NP1BR
    The role model for the mini-majors is ConocoPhillips
 COP.N , the former major that shed refining and much of its
international assets to become the top Permian producer by
volume. It spent about $23 billion in the last 18 months buying
Shell and Concho Resources properties in Texas.
    
    PRIVATE EQUITY'S ROLE
    As European majors have exited, private equity firms are
offering fuel for further deals. Oil prices at 14-year highs are
kicking up asset values and providing opportunities to exit
long-held investments.
    "With prices going up, and most of private equity focused on
harvesting existing investments in this space, they are more
likely to be sellers too, and so the independents will have
those opportunities to look at as well," said Lande Spottswood,
partner at law firm Vinson & Elkins.

 (Reporting by David French in Houston; Additional reporting by
Shariq Khan in Bengaluru; editing by David Gregorio)
 ((davidj.french@thomsonreuters.com;))