Who's Next after Diamondback? Potential Takeover Targets in the Permia

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Who's Next after Diamondback? Potential Takeover Targets in the Permian Basin

02/15/2024

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Who-s-Next-after-Diamondback-Potential-akeover-Targets-in-the-Permian-Basin

FRESH NEWS: The $26 billion purchase of Endeavor Energy Resources by Diamondback Energy, with its stock up 2.6%, is the newest big deal combining oil and gas production in the Permian Basin under a few big companies (more details here). This leads to a big question: who's next to be bought out?

Before diving into here's a handy list from Rextag's Energy DataLink of the 10 top Upstream Operators in the Permian Basin:

#	Company	Oil (Mbbl)	Gas (Mbbl)	BOE (Mbbl)	Producing Wells
1	Pioneer Natural Resources USA, Inc.	1090.18	2991.02	1588.69	10,471
2	COG Operating, LLC	840.57	2893.77	1322.86	9,353
3	EOG Resources, Inc.	694.81	2814.40	1163.88	5,026
4	Apache Corporation	462.89	2689.47	911.13	11,692
5	XTO Energy, Inc.	567.02	2057.94	910.01	6,321
6	Chevron USA, Inc.	469.69	2211.90	838.34	7,007
7	Diamondback E&P, LLC	551.92	1513.68	804.20	7,104
8	WPX Energy Permian, LLC	405.27	2013.32	740.82	1,223
9	Occidental Permian, Ltd.	571.03	921.14	724.55	8,648
10	Cimarex Energy Company	325.96	2388.81	724.10	2,529

Rextag`s table showing Top 10 Permian Basin Upstream Operators as of February 2024

Ovintiv

Ovintiv, which used to be called Encana and has seen its stock increase by 0.8%, has changed a lot in the last 10-12 years. It's a company with a wide range of assets in both the US and Canada, making any deal more complex than one focused solely on the Permian Basin. However, with control over more than 200,000 barrels of oil equivalent per day in the Permian, it remains a desirable acquisition for many potential buyers.

Coterra Energy

Coterra Energy was created in 2021 by merging Cimarex and Cabot Oil & Gas, which boosted its stock by 16%. Coterra has a mix of assets not just in the Permian, but also in the Marcellus Shale and Anadarko Basin. A buyout from a big company like Chevron or ConocoPhillips, both seeing a 0.3% stock increase, would be more complex due to Coterra's diverse holdings, especially in gas. This could mean selling off some parts of the business after the buyout, unlike ExxonMobil's simpler deal buying Pioneer Natural Resources, focused only on the Permian.

EOG

EOG, a major independent producer with a significant presence in the Permian Basin, often goes unnoticed in acquisition talks. Its diverse asset portfolio, spanning beyond the Permian to include the Marcellus, Haynesville, and DJ Basins, has made it a less appealing target recently. Companies have been looking for deals that strengthen their Permian holdings or expand into other key areas.

EOG's operations cover a wide range of locations. It has a large operation in the Permian (over 660k barrels of oil equivalent per day) and is active in the Bakken Shale, DJ Basin, Powder River Basin in Wyoming, Anadarko Basin, Barnett Shale, Eagle Ford Shale, and Utica Basin in the Northeast, along with international assets.

Devon Energy

Devon Energy, headquartered in Oklahoma City and showing a slight stock decrease of 0.1%, is another longstanding independent oil producer that rarely comes up in acquisition talks, similar to EOG. However, with its substantial Permian production of 478,000 barrels of oil equivalent per day, Devon represents a significant opportunity for larger companies aiming to boost their presence in the Permian Basin.

While Devon, like EOG, has operations across various U.S. shale regions, it would likely be a simpler acquisition target compared to its Houston-based counterpart. Recent rumors have swirled about Devon being in discussions to buy EnerPlus, a move that would not only expand its assets into the Marcellus shale but also strengthen its Bakken shale operations.

The complexity of their asset portfolios is one reason these two well-established growth-focused independents are not often seen as potential takeover candidates.

Let's Talk

The essence of the recent wave of shale consolidation has been relatively straightforward transactions, focusing on targets with assets in just one basin. Deals have been particularly appealing when the target's assets closely align with the buyer's existing operations in the same area, much like ExxonMobil's acquisition of Pioneer.

Such transactions are preferable because they're easier to integrate, offer significant cost savings, and minimize the need for selling off less essential assets. However, opportunities for these kinds of straightforward, large-scale deals in the Permian Basin are becoming scarce.

When companies like EOG and Devon Energy begin to divest from certain areas to streamline their asset portfolios, it suggests they're potentially preparing for acquisition by making their operations more attractive to buyers.

This suggests that while there are still deals to be made, the scale and impact of upstream mergers and acquisitions in 2024 might not match the levels seen in 2023.