E&P Buyers, Sellers Seek Pint-Sized Shale Deals In Second Half 2015

Pragmatists may consider 2015 a bust for A&D, barring a few scattered transactions, but this could well be the year of the little deal.

Apart from the $3.9 billion Noble Energy Corp. (NBL) purchase of Rosetta Resources Inc. (ROSE), disclosed transactions have been on the mild side. Factoring out Noble’s purchase, 2015 E&P deal values have averaged about $67 million through June 30.

Nonetheless, companies at Global Hunter Securities’ GHS 100 Energy Conference in Chicago said they are continuing to plan for deals that will add core resources, double their company’s stake or just give them slightly better rock. E&Ps’ strategy hasn’t really changed: ambition, opportunity and simply rolling the dice on acreage remain strong motivators.

Opportunity hunters include the E&P segment for Unit Corp. (UNT) of Tulsa, which is anticipating acquisition opportunities in the Southern Oklahoma Hoxbar Oil Trend (SoHot) and the Wilcox.

Deals could be partially funded with noncore sales, including the Marmaton play in the Oklahoma panhandle, said Mike Kelly, senior analyst, Global Hunter Securities.

In its drilling rig segment, Unit expects to receive proceeds of $6- to $8 million from a planned July auction of 30 rigs written off at the end of 2014.

Unit has a 93-rig fleet. In 2014, the company’s oil and NGL production increased 16%.

U.S. Energy Corp. (USEG) is more ambitious. The company wants to double the company’s size by year-end through acquisitions, though it may have hurdles getting there. U.S. Energy describes itself as a participant in about 11,500 net acres in South Texas, the Williston and elsewhere.

U.S. Energy said June 25 that due to low oil prices the company would reduce general and administrative costs by about 20%. The company cut 15% of its workforce and remaining employees, including officers and directors, saw a significant reduction in annual compensation. Though the cuts saved more than $600,000 on an annualized basis, U.S. Energy expects another $500,000 cut by year-end 2015.

U.S. Energy wants to move toward becoming an operator of wells and controlling the pace of its development and spending, Kelly said.

The Riverton, Wyo., company is also considering plans to work with a partner in the Eagle Ford Shale in 2015 or 2016.

In the Williston Basin, Northern Oil & Gas Inc. (NOG) continues to realize fair prices for its oil. While the company has not seen any large packages of nonoperated acreage for sale, Kelly said it is looking.

The company “expects to acquire less than 3,000-5,000 net acres per quarter in 2015 given limited capital allocation,” he said.

Among large companies, Carrizo Oil & Gas Inc. (CRZO) said a few hundred thousand acres in the Delaware Basin are potentially available for less than $10,000 per acre.

Carrizo is working to increase the number of wells it can drill by downspacing while maintaining production targets despite recent flooding in Texas.

Its focus on making deals appears to be on longer laterals, which would increase its capital efficiency.

“CRZO reiterated plans to ultimately scale up to 50,000 net acres in the play, noting it could opt to fund a large acquisition” of possibly $150 million, Kelly said.

In the Eagle Ford and Austin Chalk, Earthstone Energy Inc. (ESTE) is focusing on lower declines and potentially higher EURs in its drilling program while being an active listener to the market.

Earthstone is focused in its operated Eagle Ford and Austin Chalk acreage, where the company has recently completed nine wells from its prior 17-well backlog, Kelly said.

At the same time, management “continues to scour the landscape for attractive acquisitions, both looking at publicly marketed deals and spending time self-sourcing potential acquisition ideas, a route that has proved successful in the past.”

EQT Corp.’s (EQT) objective is to keep watch for possible acquisitions to increase its core inventory and block up its acreage position in the Marcellus and Utica. EQT has 600,000 total Marcellus acres and hundreds of thousands more in the Utica.

It may not have to look far. EQT’s offset operators, such as Chevron Corp. (CVX), have not been especially active on their operated acreage, citing struggles to match the cost savings attained by independent operators.

“We believe a core acreage acquisition that would facilitate longer laterals would be viewed positively for EQT,” Kelly said.

Sellers

A few E&Ps are trying to move assets.

Whiting Petroleum Corp. (WLL) is still targeting asset sales of $500 million to $1 billion. The company wants to unload assets following the $6 billion purchase of Kodiak Oil & Gas in 2014.

In April, Whiting said it sold conventional, operated and nonoperated properties to a private buyer for $108 million, with proceeds likely used on the balance sheet. Kelly said management will likely announce a deal with second-quarter earnings.

“Expectations are set at $200 million to $500 million in noncore producing properties, with the higher end assuming the sale of North Ward Estes,” he said.

Another company looking to sell: Resolute Energy Corp. (REN). Resolute has seen a great deal of interest in its Powder River Basin assets, but doesn’t expect to bring in up to $150 million as GHS estimated.

Management would not be a seller on the low side, though, which would be a proved developed producing PV-10 value of about $50 million.

The company has also received interest from buyers in its Denton Field in the Permian Basin on the Central Basin Platform. The asset had first-quarter 2015 production of about 700 barrels of oil equivalent per day (boe/d), mostly oil. At production multiples of $50,000 per boe/d, the field would be worth about $35 million.

Resolute doesn’t expect to put Denton up for sale in the third quarter of 2015, but said it could happen between the fourth quarter and first quarter of 2016.

“The company remains optimistic about entering into a joint venture in the Permian Basin so it can resume drilling,” Kelly said.

Contact the author, Darren Barbee, at dbarbee@hartenergy.com.