SAN ANTONIO─While the core of the Eagle Ford Shale is shriveling along with commodity prices, acreage metrics within that remaining core are holding ground, according to an analyst at Goldman Sachs.

Mark Paull, vice president of Goldman Sachs’ global natural resources group, said deal size and deal metrics in the popular basin have come down across the board since the price collapse in oil and NGLs, with one notable exception: the $118-million EnerVest Ltd./Alta Mesa deal in September.

“The acreage multiple here was actually the same as pre-price collapse multiples,” he said at Hart Energy’s DUG Eagle Ford conference in late October. “That’s because there is a real shortage of core positions, and we think going forward [core positions] will always command a premium valuation.”

Goldman Sachs calculates that EnerVest paid $22,000 per acre, in line with acreage valuations paid during the height of the oil boom in 2013 and 2014. The deal was for some 1,500 nonoperated net acres in Karnes County.

“Obviously, PDP metrics have come down, but acreage is still at a premium in the core of the play. For companies looking to enter the play, they recognize they need a core position.”

Like A&D across the U.S., Eagle Ford dealmaking is way down in 2015, with $4.5 billion in total transaction value, and just one deal—Noble Energy’s merger with Rosetta Resources—accounting for more than $4 billion of the sum.

“Without Noble/Rosetta, we’d be looking at a very low total transaction volume for 2015. That’s an indicator there is little activity out there.”

Eagle Ford dealmaking was most robust in 2010 and 2011, immediately following the land grab, when private, public and international companies were trying to build positions in the play. The deal sizes were quite large, and many deals transacted during this period for some $35 billion in deal value in those two years.

But the ensuing years were surprisingly quiet, Paull said, with relatively few deals and one or two “chunky” deals each year padding transaction values. For instance, Devon Energy’s single $6-billion acquisition of GeoSouthern’s assets bolstered a total value of $8 billion in 2013, 75% of the whole. Take out deals between Encana/Freeport-McMoRan and Baytex/Aurora in 2014 for a combined $5 billion, “and that’s about half of that bar” of $11 billion in deals that year, he said.

He attributes this slowdown to operators with acreage concentrating on “drilling to grow” during this window, with only a select few doing large deals to get a footprint in the play.

The complexion of buyers and sellers has also changed. In the early years of the Eagle Ford, private companies were the predominate sellers, with public companies, majors and internationals comprising the buyers. That trend has reversed: private companies have “all but dried up” as sellers, and instead have come on strong in the buyers’ category. Public companies rationalizing portfolios are now sellers.

“Public companies are affected by balance sheets and access to capital. Private buyers have a lot of dry powder right now. This year, easily 70% of the companies we see coming through the data rooms are private equity backed management teams,” he said.

Goldman Sachs uses an analysis tool that marries revenue to productivity that generates breakevens across the basin to identify sweet spots. At $50 oil, the majority of hot spots on the heat map fall in Karnes and DeWitt counties, with some islands in LaSalle and McMullen. This is where Paull thinks deals will get done in the coming year.

“While we are optimistic about activity levels going forward, we also recognize the core of the play has shrunk considerably. The sweet spot is smaller, but this is an indicator of where we might see industry activity” this coming year.

Contact the author, Steve Toon, at stoon@hartenergy.com.

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