Permian M&A: place your bets on the next takeover target
Chevron tried to buy the race. Dissatisfied with the morning odds, Occidental (a true front runner) began its chase for Anadarko.
More mergers are coming. The gaps amongst the Majors' Permian outlooks aren't sustainable. There are huge G&A mismatches with smaller companies that need to be resolved too. Other companies are 'all in' on the Permian, but have inventory issues. Which Permian E&Ps will be the next prized horses to purchase in this race to consolidation? We have a few ideas and expect buyers to target the top benches with large volumes of undrilled wells. M&A the past year was about shared lease lines. Following Oxy's lead, it may now pivot back to rock quality and scale.
Chevron is loaded up with dry powder to maybe make another big bid. We believe it's still at the starting gate, especially as it executes aggressive new Permian production targets. Then there's ExxonMobil, with its own plans to grow output to 1 million boe/d by 2024. After its purchases – albeit spread out - of XTO and BOPCO in the Permian, could Exxon secure the Triple Crown with another big deal? How will Shell respond? It feels like they have to. Are we looking at five or 12 furlongs?
Ladies and gentlemen, make your bets. Think big. Prior to the $57b Anadarko deal, we figured that M&A deals would stay within the $2b-$10b range. Occidental sees 75% of Anadarko's value in shale, so let's put that prior range aside. Here's our race form today…
3:1 Endeavor Energy Resources
Endeavor has grown by making its own acquisitions over the decades. As it chipped away at deals to get larger and larger, the storied Permian producer has been on the radar for months as an attractive buy for Shell. Endeavor's huge 350,000-acre position in the Midland Basin is fiercely desired, and it’s the biggest private company in the area.
5:1 Diamondback Energy
A powerful force ripe for acquisition. Diamondback's Permian tight oil production mix is more than 80% oil. By our models, the company could grow production nearly 100% in the next five years. Diamondback closed its purchase of Energen last year, which boosted its net Tier One Permian acres by 57% to more than 266,000. Now that's an attractive horse.
10:1 Concho Resources
Concho's acquisition of RSP Permian last year was driven in part by shared lease lines, which makes for a big, blocky footprint today. This operator could also grow its output close to 100% within five years, and its wells yield oily barrels. Its well metrics look fantastic too, as it continues the transition to large-scale industrialised development. Any Major buying Concho would absolutely catapult themselves to be a Permian powerhouse.
20:1 Pioneer Natural Resources
The odds are lower on Pioneer, especially since its CEO, Scott Sheffield, explicitly said that Pioneer is not for sale. Still, the rumours around Pioneer's acquisition have swirled for years. As the company goes through a period of change, it will look to aggressively cut G&A costs. With its equity today priced far below prior highs, the company's established footprint and infrastructure would be attractive to a buyer looking to exploit the Permian for many, many years.
Now, off to the races – we hope you've made your bets. It's guaranteed the race leader will change a few times as we round the track. We go into even more betting odds in our webinar, Permian M&A: who's the next takeover target?, available to stream on demand.