Will the Permian Continue to Attract M&A Activity and Capital?
Will Permian’s attractiveness hold?
In the previous part, we saw how merger and acquisition activity in the Permian slowed down as the year progressed. Increasing M&A activity in the region has increased per acreage costs, causing producers to decide between higher acquisition costs and lower oil prices. Given the recent improvement in oil prices, producers who already hold sizeable positions in the Permian will benefit significantly due to Permian’s low costs compared to producers based in other shale plays.
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Permian: a magnet for capital investments?
According to IHS Markit, capital investments in the Permian will continue to rise until 2021. IHS Markit had noted in its report, “Impressive break-even economics, abundant geological opportunities, established development parameters and stable to improving oil market conditions are expected to reinforce interest in the basin for the foreseeable future.”
M&A outlook for 2017
PricewaterhouseCoopers in its outlook for 2H17 noted, “The reshuffling of E&P portfolios continues as companies raise cash by divesting non-core assets and, in many cases, redeploy the cash into investments in core basins.” Additionally, the consulting firm noted that private equities have increased oil and gas sector-related deal activity this year, “leveraging the market’s increased appetite for oil and gas assets by preparing their companies for sale or an IPO.”
As an example, private equity firm Apollo Global Management is combining with Double Eagle Energy Holdings III to create a Permian-focused exploration company. Double Eagle, which focuses on acquiring and developing oil and gas assets, had previously formed Double Eagle Energy Permian or Double Eagle II. As we saw in part one of this series, Double Eagle Energy Permian was sold to Parsley Energy (PE) for $2.8 billion in April this year.