Last year seems so long ago now, but oil and gas people will recall that 2019 was supposed to have been when the big wave of M&A came to consolidate the U.S. shale drilling industry. The trend was building in April of last year, when Chevron CVX and Oxy spent a month fighting over who would win the chance to overpay for Anadarko Petroleum APC . Oxy won that competition and landed Anadarko for $55 billion — a princely sum that sparked speculation over who would sell next, and for the winning bidder was pounded by the market for having overpaid, but speculation about more consolidation – especially among the big players in the oil-rich Permian Basin – only continued to ramp up. Surely, more big deals were coming, and soon.
Well, “soon” turned out to be 15 months later, in July of this year, when Chevron was able to land the big fish it had been seeking in its $13 billion deal to acquire another large independent Permian player, Noble Energy NBL . After Oxy’s deal for Anadarko failed to impress investors, more than a year had gone by in the shale patch without a single truly large M&A transaction taking place.
In contrast, though, Chevron’s comparative bargain deal for Noble was met with broad approval by the investor community, with analyst after analyst offering rave reviews following its announcement on July 20. Management teams at big corporations are always sensitive to the views of big investors, obviously, and the general approval of the Chevron/Noble deal now seems to have finally touched off the wave of consolidation that most had anticipated for 2019.
As Enverus detailed a couple of weeks ago in the table below, the Chevron/Noble merger was quickly followed by four sizable shale patch deals: Castleton Resources purchase of the Haynesville/Bossier holdings of Range Resources RRC ; Southwestern Energ SWN y’s purchase of Montage Resources and its sizable Marcellus/Utica position; and the $5.6 billion merger between Devon Energy DVN and WPX Energy WPX , a deal that gives Devon a large footprint in the Permian Basin.
Since last Wednesday, rumors have been flying that mega-independent ConocoPhillips COP is on the verge of making a deal to purchase fellow independent Concho Resources, holder of one of the biggest acreage footprints across the Permian/Delaware Basin region. Bloomberg, citing “people familiar with the matter,” reported on Sunday that the two parties are very close to consolidating a final deal and could make a formal announcement of it as soon as Monday.
Should the deal happen, it would likely be met with investor approval, depending on the price, of course. Tudor, Pickering, Holt & Co. said in a note on Thursday that “Feedback across the board was constructive, from long only to hedge fund accounts, if a deal were to be consummated…Concho would add to COP’s Permian scale and somewhat mitigate political discussions on Alaska, while the combined entity’s market cap and crude leverage continues to improve the investment case relative to integrated peers, especially given the lack of downstream exposure…”.
Carl Sankey at Sankey Research also weighed in on Thursday, saying in part that “The overall attitude as evidenced by the market driving $CXO higher was that a ConocoConcho potential deal is real; the Bloomberg journalist who broke the story is seen as credible; the double think is that COP and CXO floated the deal to get market reaction, which was positive. Many thought COP might get wrecked at the mention of a big acquisition, even without a deal price. It did not.”
Thus, if ConocoPhillips and Concho really were floating a trial balloon on a merger last week, it appears to have come back positive. Bloomberg, the original reporter of the rumor, believes all systems are now go for a formal announcement.
Should that formal announcement come about, the fifth significant M&A transaction in the U.S. shale patch in just three months would send a clear signal that the long-anticipated wave of consolidation is fully underway.