Many oil and gas upstream companies are increasing their domestic capital spending, especially in West Texas. Relative stability in crude oil prices and greater visibility on profit margins from stacked plays and new technology have led companies to ramp up capital spending plans for 2017.

A recent Bloomberg article indicates that U.S. drillers are increasing 2017 capital spending by 32% to $84 billion, compared with just 3 percent for international projects. Much of the increase is being allocated to the Permian Basin, “where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.” (Bloomberg). According to EOG Resources Chief Executive Officer Bill Thomas some Permian Basin completed wells yielded 70% returns at 1st quarter prices.

Together with increased capex spending, upstream companies are growing reserves through acquisitions. Selected recent upstream transactions include the following deals:

Upstream M&A Deals May 2017 (Source: Oil & Gas Financial Journal)

  • Noble Energy has entered into an agreement to divest its Appalachian basin assets to HG Energy LLC
  • Jonah Energy has signed a definitive agreement to acquire natural gas and oil producing properties in the Jonah and Pinedale fields and surrounding area from LINN Energy Inc. for approximately $580 million.
  • Centennial Resource Development has entered into an agreement to acquire certain undeveloped acreage and producing assets in Northern Delaware basin from GMT Exploration for ~$350 million
  • Diversified Gas & Oil has entered into an agreement to acquire certain Appalachian basin assets in Ohio, Pennsylvania, Southern New York and Northeast Tennessee from Titan Energy LLC (formerly Atlas Resource Partners) for $84.2 million. The transaction includes 494,229 net acres and ~7,300 wells with net production of 40.878 MMcfe/d
  • Trilantic Capital Management and Waveland Energy Partners announced an equity commitment to invest in DJR Energy LLC, a newly formed E&P company focused on developing oil and gas resources in San Juan basin in New Mexico.
  • Memorial Production Partners successfully completed its financial restructuring and emerged from Chapter 11 as Amplify Energy Corp, by eliminating ~$1.3 billion of debt.
  • WPX completed the previously announced acquisition of Delaware basin assets from Panther Energy and Carrier Energy for $775 million.
  • PetroLegacy Energy II completed the previously announced acquisition of Midland basin acreage from Pioneer for $266 million.

 

Source: Bloomberg

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Ken Margolis | Managing Partner Castle Placement, LLC
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