Q2 upstream deals totaled $2.6 billion, more than a 200% increase over Q1
Enverus, the leading oil & gas SaaS and data analytics company, has released its summary of Q2 2020 U.S. upstream M&A. The update shows upstream deals staged a small recovery to $2.6 billion from only $770 million during Q1. However, Q2 still ranks as the third lowest quarterly value since 2009.
The largest deal of Q2 targeted the oily Midland Basin, but Pure Acquisition Corporation’s $845 million combination with HighPeak Energy was the second iteration of a deal initially announced in late 2019 and then restructured after oil prices declined sharply. Otherwise, the majority of the biggest transactions during Q2 targeted gas-producing Appalachian assets.
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“With the uncertainty around oil, the limited buyers largely targeted low-cost natural gas assets during Q2,” said Andrew Dittmar, senior M&A analyst at Enverus.
The largest of the gas deals was Shell’s $541 million sale of its upstream and midstream business in Appalachia to National Fuel Gas. The next largest deal consisted of the sale of an overriding royalty interest by Appalachian producer Antero Resources to private investor Sixth Street Partners for $402 million. Overall, gas increased its share of M&A from 5% in 2019 to 30% year-to-date.
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“Relatively strong future pricing is likely driving demand for gas assets,” said Dittmar. “While the spot market for natural gas is still suffering from low prices, the future curve 12 or 24 months out is significantly higher.”
For the remainder of 2020, gas assets are likely to continue to transact as long as future pricing supports deals and possibly spread to other areas of low-cost supply like the Haynesville in Louisiana and Texas. Additionally, there seems to be continued support for royalty acquisitions like the Sixth Street deal with Antero.
However, the market for assets in major oil shale plays, which were the key driver of M&A values for quite a few years, is likely to remain challenged barring a rally in crude prices.
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