Page 4 - NorthAmOil Week 23 2021
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NorthAmOil                                    COMMENTARY                                          NorthAmOil




       Consolidation wave shows





       no signs of slowing







       The wave of consolidation sweeping the US oil and gas industry shows

       no sign of slowing, with yet more new deals announced in recent days



        US               THE wave of consolidation that has been sweep-  Rocking the DJ
                         ing the US oil and gas industry since last year  The merger between Bonanza Creek and Extrac-
       WHAT:             shows no sign of slowing, with yet more major  tion, announced in May, is already set to create
       More major mergers and   new deals announced in recent days. Civitas  the largest exploration and production company
       acquisitions have been   Resources, which itself is currently in the process  focused on Colorado’s Denver-Julesburg (DJ)
       announced in the US   of being formed through the merger of Bonanza  Basin. Now, the addition of Crestone through
       oil and gas industry in   Creek Energy and Extraction Oil & Gas, agreed  an all-stock deal will turn Civitas into a DJ Basin
       recent days.      this week to acquire Crestone Peak Resources.  player worth around $4.5bn.
                         Separately, KKR & Co.’s Independence Energy   Sources familiar with the matter told Reuters
       WHY:              announced that it had agreed to merge with  that the latest deal values Crestone, which was
       Producers are     Contango Oil & Gas.                  formed in 2016 when the Canada Pension Plan
       increasingly pursuing   This follows a handful of similarly large merg-  Investment Board (CPPIB) and the Broe Group
       scale combined with   ers and acquisitions (M&As) among US shale  acquired assets from Encana, at around $1.3bn
       restrained spending on   players in recent weeks and months. Notably, at  including debt.
       new drilling.     the start of June, Southwestern Energy agreed   Once both transactions have closed, Civitas
                         to buy Indigo Natural Resources for roughly  expects to be “optimally positioned to increase
       WHAT NEXT:        $2.7bn, while Cabot Oil & Gas struck a deal to  efficiencies through combining operations”
       Further deals are likely   merge with Cimarex Energy to create a $17bn  across more than 500,000 net acres (2,023
       to follow.        company in late May. These were just some of  square km) with an estimated production base
                         the other recent examples of a trend that has  of 160,000 barrels of oil equivalent per day
                         been playing out since the second half of 2020.  (boepd).
                         The flurry of deals comes as producers are   Bonanza Creek and Extraction both say they
                         increasingly turning to scale to help drive their  have committed to a strategy that prioritises
                         performance – though in some cases, such as  operational discipline, a strong balance sheet
                         the Southwestern-Indigo deal, they are also  and commitment to free cash flow (FCF) gen-
                         seeking to expand into new regions.  eration, among other factors, ahead of Civitas’
                           And while the consolidation trend began to  creation. They also intend for Civitas to be Col-
                         play out during a particularly challenging time  orado’s first carbon-neutral oil and gas producer
                         for the oil and gas industry, it now seems that it  – in terms of Scope 1 and Scope 2 emissions.
                         is being bolstered by stronger commodity prices  This plan, already set out when the merger
                         and a more favourable operating environment.  between Bonanza Creek and Extraction was
















                                                                                                  Some of the latest deals
                                                                                                  are taking place outside
                                                                                                  of the Permian Basin,
                                                                                                  in regions such as
                                                                                                  Colorado’s DJ Basin.


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