An A&D riddle: What isn’t for sale, cost $64 million, required 150,000 acres and in the past year has generated a 30% return?

Answer: 8,700 extremely expensive chickens.

Since at least 2012, the U.S. Fish and Wildlife Service has warned about potential threats to the lesser prairie chickens from drilling and extraction in the Permian Basin, the Midcontinent and other areas.

After millions spent and thousands of acres donated, it appears the industry has staved off danger in the chicken shale plays. The Western Association of Fish and Wildlife Agencies said July 9 that an aerial survey indicated a population of 38,637 birds, compared with 29,934 in 2017. The surplus poultry averages out to $7,356 per chicken.

…In Permian suffering this month, West Texas Intermediate started off July up 62% compared with this time last year, according to Raymond James. As a group, equities of the pure-play operators in the basin remain down 3% since January. So it’s no surprise these producers have largely shied from making large acquisitions, which tend to produce Pavlovian investor responses.

In May, for instance, Callon Petroleum Co. said it would buy Cimarex Energy Co.’s assets in the Delaware Basin, including 18,925 net undeveloped Wolfcamp acres primarily in Ward County, Texas. The deal came with PDP of 6,831 barrels of oil equivalent per day (boe/d) (73% oil)—worth about $315 million, Capital One Securities senior E&P analyst Phillips Johnston said.

Callon appeared to get a good deal, agreeing to pay $570 million, or about $9,000 per acre, “in a neighborhood that typically commands valuations in the $20,000 to $30,000 per acre range,” Johnston said in a May report.

Sensing a reasonable deal, investors pushed back. Callon’s pre-deal share price of $12.48 landed at the bottom of the stairs on June 22 at $10.59. The nearly 16% drop shaved $235 million off Callon’s market value. So watch that first step.

...Out of the public eye, Lime Rock Partners has some sort of buying on its mind, though a fund created in the Cayman Islands by executives in Connecticut to re-up investment in a Permian company seems unnecessarily arcane. In late June, Lime Rock closed a $1.9 billion acquisition fund to acquire the remaining assets of CrownRock LP. The E&P holds more than 90,000 operated acres and production averages 40,000 boe/d.

The fund’s largest investor, HarbourVest, received $741 million in new capital commitments as part of the transaction. This gives new life to CrownRock, a Midland, Texas-based oil and gas producer run by CrownQuest Operating.

…Asian investment continues to stay low key and give the Permian a wide berth. Of the scattered shale investments by Pacific Rim companies, most have aimed for solid rather than splashy. On July 5, Japan’s Sumitomo Corp. said it purchased an oil producing asset in the Eagle Ford from multiple buyers for about $50 million. The company will own 100% interest in 624 acres in Karnes County, Texas. Peak production is estimated at 3,000 boe/d.

In June, Osaka Gas Co. Ltd., another Japanese company, bought a 30% stake in Sabine Oil & Gas Corp.’s Cotton Valley Sand and Haynesville formations. Osaka paid about $145 million.

Mitsui E&P told Investor it’s interested in acquiring assets in the Gulf of Mexico and U.S. onshore. We’re betting the Permian isn’t a top pick.

…Northern Oil and Gas Inc.’s CEO and president have switched titles. In July, Northern Oil founder and now president Mike Reger gave up the skipper’s chair for Brandon Elliott, newly named CEO and ex-president.

Reger didn’t find the CEO slot the best use of his skills. “I want my focus to be where I can add the most value to Northern and its shareholders, which is to allocate 100% of my time to growing acreage and production through accretive acquisitions,” he said in a statement.

Northern is a nonoperating company in the Williston Basin with a backlog of nonop assets either possibly for sale or actively marketed, with a value “in the multiple billions of dollars,” said Northern CFO Nicholas O’Grady.

O’Grady spoke to Investor on his 36th day at the company, but he still shrugged off the shake-up.

“I was surprised that he agreed to be the CEO in the first place,” O’Grady said. “Investor communications and day-to day operations take too much time away from his main focus, which is to grow the company through land and asset acquisitions.”

Comments