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The move into 2017 has seen no fall-off at all in the pace of deal-making by large independent oil and gas producers to acquire and divest large acreage and production positions Texas' two gigantic shale plays, the Permian Basin and the Eagle Ford Shale.
The new year has seen a flurry of transactions in these play areas, the most recent being Monday's announcement by Noble Energy (NYSE:NBL) that it is acquiring a venerable fixture in the Permian Basin, Clayton Williams Energy (NYSE:CWEI) for $2.7 billion. In announcing his company's purchase, Noble CEO David Stover said, "This transaction brings all the key elements we value: excellent rock quality, a large contiguous acreage position adjacent to our own, and robust midstream opportunities, reinforcing the Delaware Basin as a long-term value and growth driver for Noble Energy. This combination creates the industry’s second largest Southern Delaware Basin acreage position and provides more than 4,200 drilling locations on approximately 120,000 net acres, with over 2 billion barrels of oil equivalent in net unrisked resource."
For Noble, the acquisition includes 71,000 acres in the Delaware Basin that the company classifies as being "highly contiguous" to its pre-existing 47,200 acres in that area. In addition, it takes ownership of another ~100,000 net acres in other parts of the Permian Basin. At a base assumed price of $50/bbl for 2017, with modest price acceleration through 2020, Noble anticipates a pre-tax rate of return on capital of 60% for its Delaware Basin properties.
The Noble/Clayton Williams transaction comes on the heels of last week's announcement by Parsley Energy (NYSE:PE) that it had added another 23,000 net acres and net production of roughly 2,300 boe per day to its already significant holdings in the Permian/Delaware region by completing multiple unrelated transactions in recent days. The total price Parsley paid for those acquisitions came to $607 million.
"We are excited to announce a set of acquisitions that add to our premier asset bases in both the Midland and Southern Delaware Basins," stated Bryan Sheffield, Chairman and CEO of Parsley Energy. "We continue to focus on digestible bolt-on acreage that can be rapidly assimilated into our development program."
Meanwhile, Anadarko Petroleum (NYSE:APC) announced late last week that it had reached a $2.3 billion deal to sell its leasehold and producing properties in the Eagle Ford Shale to Sanchez Energy Corporation (NYSE:SN) and Blackstone Group LP (NYSE:BX). Anadarko will retain its midstream assets in the region, which are operated by its sponsored MLP, Western Gas Partners, LP (NYSE:WES).
In announcing his company's exit from the Eagle Ford region, in which it has been one of the biggest players since the early days of development, Anadarko CEO Al Walker emphasized the increased flexibility the transaction will afford his company to pursue more investments in assets in higher-return basins like the Permian/Delaware and the deepwater Gulf of Mexico.
For Sanchez, the acquisition dramatically enhances its already substantial holdings in the Eagle Ford, and contains a great deal of acreage that is contiguous to its existing holdings. This will allow the company to take greater advantage of economies of scale and achieve cost reductions through enhanced process efficiency.
Taken together, these three major transactions emphasize the overarching trends of the last several years of independent producers seeking to a) acquire or enhance positions in higher rate-of-return basins, like the Permian/Delaware region, b) high-grade their asset portfolios into larger positions in fewer basins, and c) lower costs through enhanced efficiency and economies of scale by acquiring high-quality leasehold acreage that is contiguous to pre-existing acreage positions.
The ability to move rapidly on deals like the three detailed here is a significant competitive advantage that independents hold over large, multi-national companies, and is a major reason why large independents are invariably at the forefront of the development of these major shale plays in the United States. We should expect to see these same dynamics to dominate the domestic oil and gas picture into the foreseeable future. These big shale plays will continue to be the place to be, and the large independents will continue to dominate their development.
