Page 10 - NorthAmOil Week 40

NorthAmOil COMMENTARY NorthAmOil

Debt-laden companies
that do not make
attractive acquisition
targets are having to
file for bankruptcy
protection.

The transaction also illustrates that even from debt-laden, struggling companies that may
well-financed giants such as Chevron, which have been snapped up at bargain prices during
overtook ExxonMobil to become the US’ largest previous industry downturns.
company by market capitalisation in recent days, “There is a broad consensus that consolida-
are unwilling to spend cash on M&As and are tion is a net positive for the industry,” Enverus’
seeking out stock deals instead. senior M&A analyst, Andrew Dittmar, said in
A majority of the other notable deals, how- his firm’s report. “Including the corporate deals
ever, are shale-focused, with this marking a from 2019, that process looks to be well under-
shift from the early days of the shale land grab way. There is room for further mergers, but it can
to producers now seeking to achieve synergies be a challenge to find the right asset and balance
and economies of scale through strategic com- sheet fits for accretive deals. It may take several
binations. Devon’s $2.56bn “merger of equals” more years for consolidation to play out.”
with WPX will create a major shale player with Those companies that are struggling with less
400,000 net acres (1,619 square km) in the Per- manageable debt loads, meanwhile, are being
mian’s Delaware sub-basin, as well as operations left to file for Chapter 11 bankruptcy protection.
elsewhere. The third-largest deal of the last According to law firm Haynes and Boone, which
quarter is Southwestern Energy’s acquisition tracks bankruptcies in the oil patch, bankruptcy
of Montage Resources, announced in August. filings were already on the rise from the second
Again, this is an all-stock transaction, which is half of 2019, and “substantially” picked up pace
expected to create the third-largest producer in this year. The firm said in its latest report on the
the Appalachian Basin when it closes later in the topic that 244 North American producers had Morgan Stanley
fourth quarter of the year. filed for bankruptcy protection between the
start of 2015 and August 31, 2020. These filings warns that there
What next? have involved more than $172bn in aggregate is little room for
While Morgan Stanley warns that there is little debt, with over $50bn so far in 2020 from 36
room for shale growth in an oversupplied world bankruptcies. shale growth in
where OPEC continues to pursue market share, Oil prices have stabilised somewhat from
it still sees room for oil and gas industry consoli- earlier this year, when Saudi Arabia threatened an oversupplied
dation in both the US and Canada. The bank said a price war with Russia and the impact of this
the strongest potential for consolidation existed was severely compounded by the coronavirus world where
within the US E&P sector and among integrated (COVID-19) pandemic. However, considerable OPEC continues
oil companies. uncertainty continues to hang over the industry
Other analysts have similar expectations. and threaten future price volatility. Under such to pursue market
Enverus energy data firm said in its recently circumstances, bankruptcies are expected to
published third-quarter M&A report that the continue, and it seems clearer now that M&As share.
Permian Basin was likely to remain at the fore- will not come to the rescue of those struggling
front of shale consolidation, but that companies the most with their debt loads.
focused on other regions would also benefit from For better performing companies with more
“repositioning into fewer, larger producers”. manageable debt levels, however, M&As remain
However, the firm warned that not all pro- a viable option and are now being shown to fit in
ducers would make attractive targets for consol- with the industry’s evolving strategy to pursue
idation. Indeed, buyers appear to be staying away returns ahead of growth.™

P10 www. NEWSBASE .com Week 40 08•October•2020