Since 2015, the Permian, Delaware and Midland basins have generated at least $10 billion in deal value, so hearing M&A activity is about to take off should be quite the show.

KeyBanc Capital Markets Inc. analysts were on hand at Hart Energy’s DUG Permian Basin conference and they came away with a list of what’s for sale and what they see for potential transactions.

“Following a Delaware Basin land grab over the past couple of years where private equity actively aggregated the available acreage, it appears as if a rebound in the commodity prices, a significant increase in Delaware Basin IRRs and additional de-risking have set the stage for private equity E&P companies to begin the process of monetization,” Chris Stevens, an analyst at KeyBanc, said in a May 26 report.

Their focus, Stevens said, will be southern Delaware Basin acreage.

It’s also likely that some private companies will initiate an IPO while others sell to public E&Ps.

Diamondback Energy (NYSE: FANG) and RSP Permian Inc. (NYSE: RSPP) may enter the Delaware Basin at some point during the next year or two, while Callon Petroleum Co. (NYSE: CPE) “will also likely remain opportunistic.”

Private equity companies are likely to continue expanding since so many have flocked to the area.

Stevens said that Carrizo Oil & Gas Inc. (NASDAQ: CRZO), Concho Resources Inc. (NYSE: CXO) and Energen Corp. (NYSE: EGN) may also be tempted into deals.

“Besides the availability of quality acreage packages, the impetus for entry/expansion in the Delaware includes lower acreage costs compared to the Midland” at about $15,000 to $20,000 per acre compared to $25,000-$35,000 per acre in the Midland, Stevens said.

In 2016, the median price of Delaware Basin acreage increased to $15,357 per acre, adjusting for factors such as production, compared to $3,477 in 2014.

The Midland Basin’s median 2016 price per acre was $17,265 compared to $26,807 in 2014.

“We believe the time is now for entry into the Delaware,” he said. “As the highest quality acreage will likely be the first to go, and as packages come off the market, a scarcity premium will begin to emerge in M&A valuations—similar to what is seen on the Midland side.”

Permian assets for sale:

  • Energen: 30,000 net acres in Winkler and Ward counties, Texas, including about 1,300 boe/d. Estimate $7,000 to $10,000 per acre;
  • Energen: About 22,000 net acres on the western side of Reeves County, Texas, in the Delaware Basin;
  • Devon Energy (NYSE: DVN): A package in Martin County is being marketed, as well as other Midland acreage;
  • Possible: RK Petroleum may be marketing a package including about 10,000 acres in Martin County at about $35,000 per acre; and
  • Other potential sellers: Brigham, Centennial, Endurance, Jagged Peak, J.Cleo, Luxe, Patriot, Three Rivers and Silver Hill.

As to the conference’s debate over whether the Midland or the Delaware offers superior economics, Stevens said that “certain areas of the Delaware have been quick to catch up, while also continuing to possess more running room for additional improvement.

“Though we do not believe acreage in the Delaware is as uniform and consistent as it is on the Midland Basin side, the sweet spot areas could surpass the quality of many areas of the Midland at some point,” he said.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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