The value buyers now place on various reserves categories has changed dramatically from a few years ago, says Jefferies & Co.’s Bill Marko. At the peak, companies would pay 100% of the PDP at a low discount rate (typically between 8-10%), for behind pipes nearly 100%, for a good portion of the PUDs, and they might even pay for the probables and possibles.
When the market bottomed out a year ago, however, sellers were only getting paid for the PDP component. “That’s where the buyers adjusted,” says Marko. “They were not willing to take much risk beyond PDP.”
That is starting to change. “We’ve seen some decently aggressive oil deals lately. People are starting to pay more for value beyond PDP.”
While A&D activity has trended up, the return has been slower than he anticipated. Most deals in second-half 2009 involved shale or oil, and many were “do-overs” from broken deals in late 2008, such as Denbury Resources’ acquisition of Conroe Field assets, and several divestitures by Forest Oil.
Unease over gas prices will stifle gas-weighted deals over the next year, he anticipates. “They’re still worried about over supply, but you’ll see some deals.”
Noncore exits will come to the forefront, such as recent packages offered by St. Mary Land & Exploration, Encana and Forest. “Others will come to market where companies are cutting costs. And a lot of shale-focused companies are trying to sell their nonshales.”
2010 will involve big companies taking positions akin to ENI’s quarter-billion dollar deal in the Barnett to ExxonMobil’s $41-billion buyout of XTO Energy. “We’ll see everything in between,” he says.
Joint ventures will continue to be popular, and farm downs in the deepwater Gulf of Mexico will proliferate.
“It will be a good year for A&D.”
Recommended Reading
Formentera Joins EOG in Wildcatting South Texas’ Oily Pearsall Pay
2025-01-15 - Known in the past as a “heartbreak shale,” Formentera Partners is counting on bigger completions and longer laterals to crack the Pearsall code, Managing Partner Bryan Sheffield said. EOG Resources is also exploring the shale.
Spartan Delta Ups Bought Deal Financing to $59MM
2025-01-14 - Underwriters have agreed to purchase approximately 22.2 million of Spartan Delta Corp. common shares, for resale to the public, at CA$3.82 per share (US$2.66), the company said.
Riverstone’s Leuschen Plans to IPO Methane-Mitigation-Focused SPAC
2025-01-14 - The SPAC will be Riverstone Holdings co-founder David Leuschen’s eighth, following the Permian Basin’s Centennial Resources, the Anadarko’s Alta Mesa Holdings and the Montney’s Hammerhead Resources.
Gigablue Enters CCS Agreement with Investment Firm SkiesFifty
2025-01-14 - Carbon removal company and investment firm SkiesFifty have partnered to sequester 200,000 tons of CO2 over the next four years.
Colonial Shuts Pipeline Due to Potential Gasoline Leak
2025-01-14 - Colonial Pipeline, the largest refined products pipeline operator in the United States, said on Jan. 14 it was responding to a report of a potential gasoline leak in Paulding County, Georgia and that one of its mainlines was temporarily shut down.