The slowdown of the upstream oil and gas acquisitions and divestiture market began well before this spring’s commodity price collapse, market shutdown and the news of a new virus sweeping the nation. As public market investors shut down capital and demanded free cash flow, we saw companies begin to pull back A&D activity to pause and better navigate the changing landscape. This coupled with everything else previously mentioned brings us quickly to today.
Many publicly-traded E&P companies, as well as some which are privately held, have begun restructuring conversations or were well within the bankruptcy process by early April 2020. More will follow, and this space will take some time to flush out. For an outright sale of the company or the assets individually, we see movement on the asset divestment side 3-12 months down the road.
Some energy investment banks have noted how slow, or in fact dead, the marketplace is currently. We agree it has slowed, though we are starting to see deals shake loose. There will be a lack of deals greater than $1 billion offered or closed in the foreseeable future; however, transactions in the sub-$200 million space are continuing.
Through June 2020, EnergyNet has closed more than 700 individual property packages ranging in value from $100,000 to $40 million. Of all interest types offered, royalties and minerals make up the largest percentage of total sales though there were a few larger operated packages sprinkled throughout. We see an increase in the number of packages coming to the market in the next few months, though we maintain the value range will typically be $10-$200 million. Additionally, we see gas-heavy Proved Developed Producing assets transacting more frequently than oil assets, mainly because buyers and sellers can agree on the underlying commodity price.
Deal close certainty and making sure buyers are financially capable and properly vetted remain important factors for sellers in the current market. We boast a large universe of buyers with dry powder, but the system falls apart without EnergyNet verifying that the bidders have the funds ready and liquid so they can close in a timely manner. EnergyNet promotes competition amongst financially qualified buyers who have proven they can close the deal.
If you are a buyer, don’t worry — we see a large number of deals and quality assets coming to market soon. Sellers, on the other hand, have been positively surprised by the number of bidders participating and the valuations they are putting on the table. Buyers are going out of their way to demonstrate to sellers how they are structuring their offers to provide maximum value for production and a potential upside in these current market conditions. Many buyers are getting creative with their structures to ensure a deal gets to the finish line. The professionals at EnergyNet have a 20-year history of solid experience, A&D market insight and consistent deal execution.
Read this article as it appeared in the July Wellhead.