Get ready for more asset sales in the oil and gas industry.
Earlier this month, Devon Energy sold properties in North Texas’ Barnett Shale for $553 million, which analysts said represented a “relatively attractive” multiple of cash flow.
Last week Pioneer Natural Resources and Reliance Industries agreed to sell some of their oil and gas properties in South Texas’ Eagle Ford Shale to Australia’s Sundance Energy for $221.5 million.
And on Tuesday EnerVest said it agreed to sell its Eagle Ford and Austin Chalk properties for $2.66 billion in cash and stock to special purpose acquisition entity TPG Pace Energy Holdings, which will be renamed Magnolia Oil & Gas and be led by former Occidental Petroleum CEO Steve Chazen.
What’s with all the activity?
Now that oil prices seem to have solidified above $60 per barrel, oil and gas companies are beginning to shed some of their more valuable non-core assets to pay down debt and fund their more profitable plays. At least nine publicly traded companies are expected to sell properties over the next six months, according to analysts at Tudor, Pickering, Holt.
The names include Pioneer, which has more Eagle Ford assets to sell (59,000 net acres in DeWitt, Karnes and Live Oak Counties for which data rooms will open this year, TPH reports); and Devon, which hopes to complete another $1 billion in divestitures (TPH thinks they could include properties in the Delaware and the Powder River basins).
Other divesting companies include Chesapeake Energy ($1.5 billion worth of properties most likely in the Marcellus, Utica and Haynesville basins and possibly the Mid-continent); Continental Resources (CFO John Hart said in February to expect some in a “novel” form with the “proper partner” at a “proper value” in the next few months); and Oasis Petroleum ($500 million worth of properties in the Rockies’ Williston Basin).
Range Resources also is expected to get lighter (in Oklahoma, Texas and Pennsylvania), as are QEP Resources (in the Williston), Southwestern Energy (in the Fayetteville, although Raymond James says lack of deal activity in the area could make a sale difficult) and Whiting Petroleum (its Redtail properties in Colorado as early as the second quarter).
Buyers’ appetite for large acquisition and divestiture transactions has been tepid, but interest in natural gas assets has picked up among non-traditional buyers with “contrarian, long-term bullish” views on the commodity, analysts at Seaport Global Securities said in a recent note.
TPH expects the buyers to include private equity firms, which still have more than $100 billion committed toward buying assets in the natural resources industry. That figure dwarfs the firm’s previous estimate of potential upstream deals of $25 billion to $30 billion, including BHP Billiton’s assets (some of which may be attractive to publicly traded companies).
“We continue to believe that as deals roll in over the coming quarters and companies use this capital to reduce debt, buy back stock and potentially shrink corporate overhead, equities in the public market will continue to re-rate,” the firm said.