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Analyzing Recent Acquisitions in the Oil and Gas Industry

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Recent acquisitions in the oil and gas industry

In 2016, many upstream companies with strong balance sheets acquired low-cost acreage across different resource plays. In this part, we’ll study the acquisitions by S&P 500 companies Range Resources (RRC), EOG Resources (EOG), and Occidental Petroleum (OXY).

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Range Resources acquired Memorial Resource Development

On May 17, 2016, natural gas producers Range Resources announced a definitive merger agreement with Memorial Resource Development in an all-stock transaction valued at $4.4 billion. This valuation includes the assumption of Memorial Resource Development’s net debt of $1.1 billion. In this transaction, which closed in 3Q16, MRD shareholders received a ~17% merger premium, which is low when compared with the average of ~64% for the sector (according to data compiled by Bloomberg). As this was an all-stock transaction, no cash changed hands.

This was certainly beneficial to Range Resources, especially amid today’s uncertain and volatile natural gas prices. To know more, read Analyzing the Range Resources-Memorial Resource Development Merger.

EOG Resources’ Yates acquisition

On July 6, 2016, crude oil and natural gas producer EOG Resources announced a definitive agreement to combine with Yates Petroleum, Abo Petroleum, MYCO Industries, and other entities (collectively, Yates). The transaction was valued at ~$2.5 billion. Yates is a privately held, independent crude oil and natural gas company with ~1.6 million acres across the western United States and production of ~29.6 Mboe (thousand barrels of oil equivalent) per day. To know more about how the Yates acquisition could benefit EOG Resources, refer Market Realist’s series, How Yates Can Help EOG Increase Its Premium Resource Potential.

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Occidental Petroleum’s recent acquisitions

On October 31, 2016, Occidental Petroleum (OXY) announced the acquisition of producing and non-producing leasehold acreage in the Permian Basin from private sellers. In a separate transaction, OXY also acquired interests in several Permian Basin EOR (enhanced oil recovery) and CO2 properties, and related infrastructure. The total purchase price for these transactions is ~$2 billion, which OXY funded from its existing cash on hand.

Other oil and gas producers

Oil and gas producers Diamondback Energy (FANG) and Pioneer Natural Resources (PXD) are also active in the Permian Basin. The SPDR S&P Oil and Gas Exploration & Production ETF (XOP) invests at least 80% of its total assets in oil and gas exploration companies, whereas the Energy Select Sector SPDR ETF (XLE) invests at least 95% of its total assets in oil and gas companies.

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