Rising Private Equity Investment Fuels Surging US Oil and Gas Production, M&A Activity

NEW YORK–(BUSINESS WIRE)–Private equity (PE) firms made equity commitments of $12.4 billion to 73
new upstream US oil and gas companies in 2017, a 32% increase from the
$9.4 billion contributed in 2016, according to analysis from oil and gas
research provider 1Derrick. The 2017 start-ups bring the number of
active PE-sponsored oil and gas producers to nearly 375. This PE
investment together with equity and debt markets have provided capital
to fuel the US oil and gas production surge. US oil output, is forecast
to surpass 10 million barrels per day in 2018, and Lower-48 natural gas
production, reached an all-time high of 77 Bcf/d at year-end 2017.

PE-backed firms have also played a growing role in the upstream M&A
market, participating in almost $15 billion each in both acquisitions
and divestitures in 2017. After joining in less than $5 billion in
upstream transactions in 2008-2012, PE-sponsored firms have made over
$50 billion in purchases in the next 5 years through 2017, including $28
billion in the last two years. In 2017, these E&P companies were
involved as buyers or sellers in 15 of the 20 largest US upstream deals.
These deals included Parsley Energy acquiring Midland basin acreage from
Double Eagle Energy Permian, Anadarko divesting Eagle Ford assets to
Sanchez and Gavilan Resources and Silver Run II acquiring Alta Mesa
Holdings. PE-backed firms are also likely to impact 2018 transaction
activity, as only 23 of the 73 new producers funded in 2017 have made
significant acquisitions to date. Unallocated equity commitments
announced in last two years stand at almost $10 billion.

The plunge in oil prices that started in 2014 and lasted through
mid-2016 produced favorable asset valuations and a few distressed asset
sellers, a major trigger for the recent wave of private equity
investment, according to Mangesh Hirve, COO of 1Derrick. He added,
“Other key factors included the tightening of public markets and debt
capital markets, and technological innovations that slashed drilling and
operating costs and boosted well production. These investments were
heavily concentrated on a handful of premium resource plays, especially
the Permian Basin .Also, at the same time, dozens of PE-funded firms
were also able to monetize their holdings at attractive multiples in a
surge of M&A activity beginning mid-2016. More recently, rising
commodity prices have expanded opportunities to include significant
assets in other plays that were shed by major E&P firms as they core up
their portfolios.”

1Derrick’s data reflects the heavy initial concentration of investment
in the Permian, which remains a target of approximately 150 of the
nearly 375 active companies tracked in their Private Equity Database,
and the SCOOP, STACK, and related plays in the Anadarko Basin, which is
the focus of 65 companies. Permian ($7.5 billion) and Anadarko ($4
billion) basins accounted for 75% of the PE-backed divestitures in 2017.

The scramble for Permian assets cooled off after Q1 2017. Only one of
the 20 significant 2017 PE-backed acquisitions targeted the Permian and
two involved properties in the SCOOP/STACK. These totaled just $800
million. The Eagle Ford Shale topped the expanded list of target plays
with $4.4 billion in five acquisitions. Conventional oil and gas
transactions included the $2.7 billion purchase in the San Juan Basin by
an entity funded by the Carlyle Group. Three deals were transacted in
the Williston Basin’s Bakken Shale, one in the Marcellus Shale, two in
the Niobrara Shale, and one in the Haynesville. Notably, the sellers in
17 of the 20 deals were major public E&P firms, including
ConocoPhillips, Anadarko Petroleum, Noble Energy, Encana, Pioneer
Natural Resources, SM Energy, and Cabot Oil & Gas.

1Derrick’s Mangesh Hirve expects the level of PE-equity commitments and
M&A activity to continue to grow in 2018. “Crude oil, natural gas
liquids, and natural gas production is continuing to rise to meet
growing demand from both domestic and export markets. Private equity
investors that have reaped substantial returns from their investments in
upstream companies are highly likely to continue to reinvest in the
industry. 1Derrick will continue to track this activity through our
comprehensive, proprietary Private Equity Database as well as our
industry-leading Global M&A Database.”

1Derrick (www.1derrick.com)
is an independent oil and gas research firm with offices in Houston,
Dallas, New York, London, Singapore and Bangalore. For more information
on its industry leading databases and reports on M&A, business
development strategy, new ventures, and exploration, please contact Ajit
Thomas at [email protected] or
1.646.284.8661.

Contacts

1Derrick
Ajit Thomas, 646-284-8661
[email protected]