Occidental’s Crownrock Deal Caps Busy Year Of Permian M&A

UnsplashOccidental Petroleum Corporation’s (OXY) $12 billion deal to acquire CrownRock LP added to the rush of M&A activity in the Permian Basin in 2023 as operators looked to build future drilling inventory in the massive Texas and New Mexico resource play.The deal saw Occidental acquire 170,000 boe/d of production in the Midland Basin, along with a 94,000 net acre land position and supporting infrastructure and 1,700 undeveloped drilling locations.In the last decade over $400 billion in Permian assets have changed hands, with the recent $64.5 billion Exxon Mobil Corporation deal to acquire Pioneer Natural Resources the largest deal recorded.The top 20 deals in 2023 accounted for almost $107 billion in assets shifting ownership, according to Evaluate Energy data.Source: Evaluate Energy data Consolidation expected to continueOperators expect consolidation to continue, although the number of targets available is shrinking.“I do think that you’ll continue to see consolidation,” Devon Energy Corporation president and chief executive Rick Muncrief, said at the company’s third quarter 2023 earnings call.“We’ve been on record as saying we support continued consolidation in the sector. We think it’s the right thing to do for investors,” said Muncrief. “But as far as Devon’s participation goes, I’m going to go back to those key elements and we’re going to have a high bar, be very disciplined, be very thoughtful, and make sure we can sell that to investors, that it’s the right thing to do.”Diamondback Energy chief executive officer Travis Stice echoed a similar sentiment, with buyers becoming more discerning following a lengthy period of consolidation, and opportunities now thinning out.“We have such a high-quality inventory right now that the bar is pretty high for additional opportunities,” he told analysts on a third-quarter call. Diamondback activityAll of Diamondback’s operations are in the Permian, a position it has strengthened following its own streak of acquisitions during the past several years.Most recently, that includes its subsidiary, Viper Energy Partners, moving to acquire interests from affiliates of Warwick Capital Partners and GRP Energy Capital to bolster its presence in the basin in a cash and stock deal worth about $1 billion.Almost 90 per cent of Diamondback’s future drilling plans target the Midland basin, but the company also has a smaller position in the Delaware Basin. While the Delaware assets are not on the market, president Kaes Van’t Hof said it would consider a deal under the right circumstances.“Inventory is coming in at a premium,” he said. “So I think we’re going to hold it for now, and if someone wants to pay for upside in a reasonable number… we’ll take a look at it.”The buyer pool may also have thinned, he noted, with the disappearance of many smaller private operators, which might dictate what happens in the next tranche of consolidation.“You’ve had a couple of very large buyers do a couple of deals in the Permian Basin and out of the basin. They could kind of do whatever they want, it seems,” said Van’t Hof, referring to the Exxon-Pioneer deal, and Chevron’s $53 billion move for Hess Corporation.“I would just say generally industry consolidation has happened and is continuing to happen. I think a lot of the privates are gone to logical acquirers. There may be less buyers of assets, but they’re well-funded, good operators with big balance sheets and competitive.” Other large transactionsWhile the Exxon-Pioneer mega-deal dwarfs other M&A activity in the Permian, there have been several other large and notable transactions this year.Civitas Resources acquired NGP Energy Capital management for $4.7 billion.Others include the $4.5 billion Permian Resources deal for Earthstone Resources, and Ovintiv Inc.’s $4.3 billion Black Swan Oil & Gas, Piedra Resources and PetroLegacy II assets acquisition.“We have long said that we expect to see further industry consolidation,” said Ryan Lance, chair and chief executive of ConocoPhillips, which landed Shell plc’s Permian business in a deal worth $9.5 billion in late 2021.The company has a “high bar” for M&A,” he said. “And, as a reminder, we’ve been actively high grading our own portfolio over the past several years.”As well as the Shell transaction, ConocoPhillips also landed Permian assets via its Concho Resources deal in 2020, worth over $13 billion.Occidental Petroleum’s $55 billion acquisition of Anadarko Petroleum Corporation in 2019 stood as the largest Permian deal prior to ExxonMobil’s takeover of Pioneer.More By This Author:Diamondback’s Corporate Culture Key To Improved Drilling Efficiencies EQT Looks To Hit Net Zero Targets By 2025 EQT Corporation Begins Testing LNG Market