DALLAS—When Doug Reynolds, managing director of Piper Sandler, gave a speech to the Society of Petroleum Engineers in March he labeled it “The Golden Age of A&D” with a question mark.

At the time, the upstream oil and gas industry was seeing a lot of deal activity in the works but not a ton announced. Regardless, Reynolds had an inkling that 2021 was going to be the year for A&D’s return.

“Today, six months on roughly, I think we can remove the question mark and put an exclamation point on it,” Reynolds told attendees of Oil and Gas Investor’s A&D Strategies and Opportunities conference on Sept. 29.

The upstream oil and gas industry in the U.S. has seen more A&D activity this year than the last two years combined, according to Reynolds who described 2020 as an “unnerving” year with relatively few asset deals and 2019 as “equally disappointing.” As of his presentation, he estimated about $42 billion in A&D has been transacted in 2021.

“We have seen a significant reshaping of the landscape in our business,” he continued. “Public companies have been fundamentally changed with deals that have occurred this year and frankly, I think we’re going to see quite a bit more coming in the next 12 months.”

In particular, Reynolds noted that 2021 will be the best year in A&D in terms of asset deal activity since 2014, a record-breaking year for dealmaking largely due to the shale land rush in the U.S.

“If you were thinking about selling, quite frankly now is the time,” he said. “There’s an active buyer universe and stuff is moving. You may or may not like where prices are, that’s up to you, but I can tell you that things are transacting.”

In the public domain, Reynolds estimates about $5 billion in upstream oil and gas assets are currently on the market right now, which he notes could be closer to $10 billion.

“I think we will have a very strong finish to the year and we could be over $50 billion of asset-level activity in 2021,” he said.

“While we might not make the record year of ‘14,” he added, “we’re going to have the best year since then.”

As for M&A, Reynolds noted deals on the corporate side tend to happen during downturns. During those times, big companies feel under pressure from their banks and for their capital structure, he said using Noble Energy’s sale to Chevron Corp. in 2020 as an example.

“It felt like falling into the bigger embrace of Chevron in that example was the thing to do,” he explained.

Going forward, Reynolds does expect M&A transactions to remain relatively modest.

“I don’t see a ton on the horizon between now and calendar year-end,” he said. “I do see a number on the horizon as we go into 2022.”

Sub-trends

As for what is driving the resurgence in A&D activity this year, Reynolds highlighted several of what he called “sub-trends” beginning with new basin entrants.

According to Reynolds, new basin entrant acquirers represented over $20 billion of the total $42 billion in A&D activity so far in 2021. Examples Reynolds gave include Validus Energy’s $880 million acquisition of Ovintiv Inc.’s Eagle Ford Shale asset and Vitol Group buying Hunt Oil’s Midland Basin position in a transaction estimated to be worth $1.4 billion.

“As we think about who is buying in a conservative market, we always tend to think the guy who is going to buy my property is the guy operating next door—that’s not always the case,” he said. “And I think for large, significant platforms like this, we still have many new entrants coming into the market.”

Another sub-trend, A&D activity has occurred in every basin this year, which is indicative of a healthy market, according to Reynolds. The Midcontinent could be considered an exception, however, he did note a couple million dollars of activity in the region.

The third sub-trend Reynolds mentioned was the growing trend of international sellers, such as Royal Dutch Shell Plc and Equinor ASA, getting out of the U.S. shale business, which he sees continuing. In total, international sellers have made up 28.9% of total A&D deal value in 2021.

“I would be very surprised if international majors and international owners don’t sell more assets this year notwithstanding the energy crisis going on in Europe,” he said.

Additionally, Reynolds noted that in 2021 both private and private equity-backed companies are leading sellers of assets year to date. Private and private equity-backed companies have been active also on the buy-side.

“Generally speaking, we’ve seen a number of private bids at just about every process we’ve run,” he said. “We’ve sold companies and assets to private entities. That bid has been very solid most of the year. I suspect that will continue.”

Still, Reynolds said the private and private equity-backed space has also been responsible for roughly $20 billion in sales this year—a huge win to private equity that he believes will enable them to reload with new funding.

The last sub-trend Reynolds highlighted during his presentation is the resurgence in public companies buying, which totals over $30 billion in transactions.

“By and large, public companies have been buying and that has significantly reshaped them,” he said.

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