As you read this, a lot of investor relations pros are revamping their slide decks for 2017. After a sometimes frantic two years of industry adjustment, there are lower cost curves and higher type curves to tout. Slides must show new metrics like EUR per fracked horizontal foot, and G&G graphics need to illustrate additional benches that will be drilled.
The biggest changes will show up in the opening maps that indicate where E&P companies hold acreage now after a flurry of buying and selling, and in the financial slides that show how much their capex will increase.
Remember the admonition to make straw hats in winter? You could say that’s what companies did in the downturn. Now sunnier days are here: balance sheets are cleaner, debt is lower, acreage is focused, and it’s time to move forward.
Many of the big private sellers were initially funded in 2012 and 2013 before the downturn began. They were able to stick it out and continue building up their asset value through low-cost development and enhanced completions, so 2016 was the right time to take chips off the table.
We’ve paid a lot of attention to private equity-backed and family-owned companies that made big splashes in the A&D marketplace, so I thought I’d take a look at some other players: two of the largest independents and a new service company.
In this quarter Anadarko Petroleum Corp. should close on its divestiture of Marcellus Shale assets in north-central Pennsylvania to Alta Resources Development LLC for roughly $1.24 billion. It also just agreed to sell assets on the western edge of the Eagle Ford to Sanchez et al. for $2.3 billion.
That brings APC’s monetizations to nearly $6 billion in the past two years—but it acquired $2 billion of oily assets as well. Like many large companies selling noncore assets, the money will be applied on the best-return acreage, in this case the Permian and Denver-Julesburg basins and deepwater Gulf of Mexico. In the Delaware Basin it claims to have 7,000 locations in the Wolfcamp A alone; in the D-J, 4,000, and it says these break even below $30/bbl.
A 10-year lookback shows Anadarko has spent $10 billion, monetized $14 billion and discovered 6.5 billion boe of net resource.
Looking at ConocoPhillips’ slide deck, we see that the company has basically reduced by half its completed well costs since 2014’s peak. In the Delaware Basin, it has identified 1,400 locations and 1.8 Bboe net, if the oil price is less than $50/bbl. Think of the number if oil goes up to $60, or even $70, as Raymond James’ research team recently estimated. In the Eagle Ford, COP claims 3,500 locations and 2.4 Bboe if oil is less than $50/bbl. In western Canada, 1 Bboe of unconventional resources at the same price. This doesn’t count its other assets around the globe, nor its income from its newly completed LNG plants in Australia.
One benefit coming out of the downturn is that the oil and gas industry has adapted well, becoming much more efficient, technically astute and business-oriented. Consolidation has been a major factor as new business plans continue to crop up. On the oilfield services side, we’ve learned Tri-Point LLC is one such growth platform that fits this model. Founded in summer 2015 by CEO Britt Schmidt and CFO David Lucke, it is backed by a commitment from private equity firm First Reserve.
Tri-Point’s strategy is to create a national footprint and new brand by consolidating production and process equipment and services companies that do not overlap, serving various regions, and to provide E&Ps a one-stop shop for surface production equipment. Forming Tri-Point in the depths of the downturn might seem bold, but as Schmidt explained to me, incumbent companies were already fighting hard to retain market share at the time. Tri-Point elected to align with established businesses which were well-regarded. Now it will marry front end, bespoke engineering capabilities with a platform of regional production and process equipment manufacturers under an integrated new national brand.
In December it announced three initial acquisitions: Superior Fabrication, based in Elk City, Okla., which makes production and processing equipment for upstream, midstream and downstream customers; Leed Fabrication Services of Brighton, Colo., which manufactures a wide range of wellhead production equipment and emission control devices and provides complementary field services and technical support; and Streamline Production Systems, based in Kountze, Texas. It provides engineered solutions for custom production equipment and fully engineered modular production systems.
“We’re trying to integrate all the various pieces of production equipment into one service offering, so the producer doesn’t have to call three to six companies on his own. Tri-Point will be the aggregator in this regard,” said First Reserve managing director Gary Reaves. “It’s a real opportunity for the company and its customers, and we are confident the Tri-Point management team will deliver.”
Next year, revised slide decks will tell if 2017’s tactics delivered.
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