Oil and gas minerals and royalties transactions could surpass $11 billion in 2025, according to energy M&A expert Stephen Trauber.

Minerals and royalties M&A has reached nearly $6 billion so far this year, driven by dealmaking in the Permian Basin, said Trauber, managing director, chairman and global head of energy and clean tech at boutique advisory Moelis & Co.

“There’s considerable increasing investor demand in this market,” he said April 14 at the World Oilman’s Minerals & Royalty Conference in Houston.

The largest deals have focused on the Permian Basin, the top oil-producing region in the U.S.

In January, Diamondback Energy agreed to sell $4.45 billion of Permian mineral and royalty interests to its subsidiary Viper Energy. Expected to close in the second quarter, it’s the largest transaction to be inked in the growing minerals and royalties sector.

Dealmaking is happening in other U.S. basins, including Colorado’s Denver-Julesburg (D-J) Basin and in Appalachia.

Occidental Petroleum sold a $905 million package of D-J Basin interests to Elk Range Royalties in the first quarter.

NGP-backed Elk Range added 250,000 net royalty acres (NRAs) in the D-J under operators Chevron Corp. and Civitas Resources.

It was a transformational for the growing minerals firm, Elk Range Royalties co-founder, president and CEO Charlie Shufeldt told Hart Energy in an interview.

In March, WhiteHawk Energy announced a $118 million acquisition to boost its ownership stake in Appalachia’s Marcellus Shale.

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Permian power

Investors see minerals as low-risk, cash-producing assets, particularly in basins with the most drilling activity and output.

Most U.S. drilling activity today happens in the Permian. Of the 567 onshore rigs active during the week ended April 11, 289 were in the Permian, according to Baker Hughes rig count data.

The Permian’s Delaware and Midland sub-basins hold the nation’s deepest drilling inventory with attractive breakeven economics, Trauber said.

Minerals investors want exposure to premier operators that can still drill profitably during periods of commodity price volatility.

Low-cost operators, like Exxon Mobil, Chevron, Occidental, ConocoPhillips and Diamondback, can better withstand periods of low prices than their smaller, higher-cost peers.

Drilling activity through the cycles generates sustainable cash flow for royalty owners.

“Which companies can continue to withstand the volatility of the marketplace and maybe continue to drill through cycles?” Trauber said.

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Natural gas supercycle

Buyer interest is also growing for natural gas minerals as demand and prices rise, fueled by LNG exports.

U.S. gas demand could increase by over 5 Bcf/d in the next 12 months to feed three LNG plants ticking online on the Gulf Coast.

 Venture Global’s Plaquemines LNG (Phases 1 and 2), Cheniere’s Corpus Christi LNG (Phase 3) and Exxon Mobil’s new Golden Pass LNG have a combined nominal export capacity of 5.3 Bcf/d, according to U.S. Energy Information Administration (EIA) figures.

Peak export capacity for the three projects is up to 6.3 Bcf/d.

“We continue to see a tremendous amount of support for natural gas, underpinned by LNG,” Trauber said.

Forward Henry Hub strip prices average $3.89/MMBtu over the next 12 months, per CME Group data; 24-month strip is $3.92 as of April 15.

Natural gas support is driving M&A interest in Haynesville and Appalachia gas.

The Haynesville’s ample takeaway and proximity to LNG projects helps the basin stand out from the pack, Trauber said. Increasing volumes of Permian associated gas will also fill rising LNG demand.

Marcellus gas is well positioned for the long term if additional takeaway capacity comes online.

“The excess takeaway capacity favors the Haynesville,” he said.

WhiteHawk Energy’s $118 million acquisition in March included interests across 475,000 gross unit acres in the Marcellus.

The assets are 95% operated by top Marcellus producers, including EQT Corp., Range Resources and CNX Resources.

Other Appalachia and Haynesville minerals packages are expected to hit the market in the near future, Mesa Minerals CEO Darin Zanovich told Hart Energy last month.

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