M&A Hot Streak Returns As 2Q21 Value Reaches $33 Billion

“Responding to investor pressure to operate more efficiently, E&P companies have prioritized consolidation,” said Andrew Dittmar, senior M&A analyst at Enverus. “With three extremely active quarters out of the last four, there has been more than $85 billion announced in upstream M&A during the prior 12 months.”

Public companies instead turned to acquiring private and private equity-sponsored E&Ps headlined by Pioneer Natural Resources’ $6.4 billion purchase of Midland pure-play DoublePoint Energy and including Southwestern Energy’s entrance into the Haynesville via its $3 billion acquisition of Indigo Natural Resources and EQT’s buy of Marcellus-producer Alta Resources for $2.9 billion.

“The uptick in acquisition activity targeting private equity-backed E&Ps is likely a welcome relief for sponsors that were challenged to find exit opportunities over the last few years,” commented Dittmar. “The deals targeting private E&Ps are less about cost-cutting synergies and more about adding inventory. That can be in a buyer’s home basin, like Pioneer/DoublePoint, or entering a new area as Southwestern did by acquiring Indigo in the Haynesville Shale.”

Private equity sponsors are receiving mostly buyer’s equity in these sales, with stock constituting ~70% of the value paid and cash plus debt assumed making up the other 30%. That contrasts with past years when private sellers took primarily cash.

“Following a rally in equities that raised the valuation for public E&Ps, their stock represents an attractive currency to buy private and PE-backed counterparts,” added Dittmar. “For the sellers, stock gives them upside exposure plus the flexibility to monetize into cash once lock-ups expire and when the market is favorable.”

Not all private equity backers view public markets as an exit though. For KKR’s Energy Real Assets team, which formed Independence Energy, a combination with Contango Oil & Gas that valued their stake in the combined company at ~$4.5 billion is an opportunity to grow their business as a public company via deals. With private equity-sponsored E&Ps still looking for an exit, plus public companies selling noncore assets, further acquisition opportunities should abound. Public companies will likely target the Permian to add oil-weighted inventory and possibly the Haynesville to add gas inventory. For more mature assets, companies might focus on the Eagle Ford or Bakken.

“As long as there isn’t a sharp retreat in commodity prices, M&A activity is likely to remain strong during the second half of 2021,” said Dittmar. “There are numerous opportunities for further acquisitions of private E&Ps or non-core assets. The public company consolidation story is also not finished although its pace has slowed. But we may not see another quarter with $30 billion or more in M&A this year simply because so many of the marquee public and private deals have been accomplished during the last 12 months.”

Members of the media can contact Jon Haubert to request a copy of the full report or to schedule an interview with one of Enverus’ expert analysts.