AUSTIN, TX, July 02, 2019 (GLOBE NEWSWIRE) -- Drillinginfo, the leading energy SaaS and data analytics company, published a list of the Top 10 U.S. upstream M&A deals in the second quarter of 2019 and summary of activity. While deals rebounded off historic lows in Q1 to reach $65 billion, analysts caution the value was overwhelmingly driven by Occidental’s $57 billion acquisition of Anadarko, which is the fourth-largest oil and gas upstream deal ever. That single acquisition contributed 88 percent of total deal value in Q2.Excluding Occidental-Anadarko, Q2 M&A largely matched Drillinginfo analyst expectations with a modest rebound to $7.6 billion. While nearly a four-fold increase over the $2.0 billion low in Q1 M&A, $7.6 billion is less than half of the average quarterly total of the $19 billion seen 2017-2018.“Occidental dominated headlines this quarter with assertive maneuvering to beat out much larger rival Chevron and secure a deal with Anadarko,” said Drillinginfo M&A analyst Andrew Dittmar. “While Anadarko’s assets span the globe, the deal is largely a play on U.S. shale —particularly in the juggernaut Permian which continues to power U.S. production growth.”Moving past that deal, the largest Q2 deals focused on the Haynesville, Gulf of Mexico, and onshore U.S. conventional assets.Comstock Resources picked up the second-largest deal of Q2 when it acquired private equity-backed Covey Park for $2.2 billion to expand its Haynesville operations. The acquisition relied on the willingness of Dallas Cowboys owner and Comstock controlling shareholder Jerry Jones to open his checkbook and increase his total commitment by $475 million to $1.1 billion. The support by Jones permitted Comstock to avoid one of the key impediments to acquisitions by public companies — a near complete lack of Wall Street financial support. Halfway through 2019, there has been little-to-no growth capital provided via follow-on equity raises to U.S. public operators. Following suit, bond issuances are on track for a decade low. Public E&Ps are tightly focused on efficiently drilling existing inventory, which they appear to be doing effectively as U.S. production continues to grow despite Drillinginfo analysts observing an expected 20 percent average capex cut for 50+ E&Ps in 2019.“Wall Street, consistent with the message for E&Ps to live within cash flow, has cut off new investment dollars from public markets,” continued Dittmar. “Smaller E&Ps, many of which were focused on growth and counting on continued funding have been particularly impacted. Some of these smaller companies could evaluate whether they would be better off private.”Private capital is still being deployed, albeit potentially with a different model from past years. “Private money is finding targeted opportunities,” said John Spears Director of Market Research at Drillinginfo. “Companies like Sabinal (Kayne Anderson sponsored) are buying production-heavy assets as public companies trim their portfolios. The investment timeline may have lengthened from past years, but these companies still see opportunity to generate cash flow.” Other private moves include the merger of Gastar (Ares) with Chisholm (Apollo) and talks between Elliott Management and QEP for a go-private deal.What didn’t emerge in Q2 was a spate of public company consolidation in the wake of Oxy/Anadarko. Commentary from market participants including management at the majors indicates the wide expectations in price between buyers and sellers makes deals challenging. What could take place are further “mergers of equals” like the Midstates/Amplify deal in May and the recent oilfield services combination of Keane Group and C&J Energy, with both deals leading to a 50-50 ownership structure between existing shareholders in the new companies.Top Takeaways from Q2 2019:

-- $65 billion total in 2Q19 upstream deal activity, but $57 billion is attributable to one deal -- Occidental’s acquisition of Anadarko is a historic bet on shale, particularly the Permian -- Otherwise, deal value bounces off extreme Q1 low to a modest $7.6 billion -- Brigham Minerals joins the ranks of public royalty companies with $300 million IPO -- Gulf of Mexico sees some activity as companies look at cash flow generating assets -- E&Ps look to midstream asset sales and joint ventures as additional capital sources

Outlook for Q3 2019:

-- Deal activity likely to remain slow but steady as private capital is put to work -- Some smaller public E&Ps with high-quality assets may get offers to go private -- Companies will evaluate merger of equal deals as one option for gaining efficiencies -- E&Ps will continue to pursue alternative financing (drillcos) with tight capital markets -- Royalty market will keep gaining momentum with more buyers growing their portfolios -- Majors want to grow shale exposure, but may still be some time out from making a move

Attachment

-- Q2 M&A Top 10—crop

Jon Haubert Drillinginfo 3033965996 jon@hblegacy.com

© 2019 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Locations

Commenting is limited to Omaha World-Herald subscribers. To sign up, click here.

If you're already a subscriber and need to activate your access or log in, click here.

Load comments

You must be a full digital subscriber to read this article You must be a digital subscriber to view this article.