CHICAGO & NEW YORK--(BUSINESS WIRE)--Link to Fitch Ratings' Report: U.S. and Canadian E&P Transactions (Focus on Small Onshore Deals, Financial Buyers Remain on Sidelines)
The second quarter saw acceleration in U.S. and Canadian exploration and production (E&P) transaction activity, according to Fitch Ratings. The rise in transaction volume seems to be largely due to the improvement in hydrocarbon prices, including the tightening of bid/ask spreads, and access to capital markets.
Traditional E&P companies have dominated acquisition activity, representing 69% and 76% of total transactions and consideration, respectively. Corporates seemed to be largely focused on improving the size and quality of their core U.S. shale positions, extending/entering into attractive new U.S. shale positions and/or raising liquidity by selling certain noncore assets. Private/financially backed acquirers seemed to have a more opportunistic focus, with transactions observed across a variety of basins/regions.
Fitch recently reviewed U.S. and Canadian E&P transactions greater than USD100 million between 4Q2015 and 2Q2016 and accounts for a total of 52 pending and completed E&P transactions worth over USD30 billion. A few large transactions attracted the majority of capital, with the top 15 largest E&P transactions representing approximately 67% of total consideration. However, transactions were largely focused on small onshore deals, consistent with the implicit corporates focus, with the median total consideration just over USD350 million.
Fitch also observed only two offshore transactions within its sample suggesting that offshore assets are currently out of favor. We believe the longer cycle and higher capital intensive nature of offshore assets make them less attractive at current hydrocarbon prices. The higher operational flexibility, shorter cash conversion cycle, and improving cost profile of U.S. shale assets, in particular, appear more attractive to a wider range of E&P asset acquirers.
Fitch calculates the median U.S. and Canadian E&P transaction price per acre, flowing barrel, and drilling location at approximately USD12,300, USD62,000, and USD814,000, respectively. Permian and Anadarko (SCOOP/STACK) comprised around one-third of announced transactions and tended to receive valuations above the median price. This is likely due to the comparatively stronger return profile of these plays given their favorable liquids mix, competitive cost position, and promising production results. Another consideration is their earlier stage of horizontal development, providing operators with an opportunity to deploy recent, more efficient fracking techniques across more drilling locations.
For more information, see Fitch's special report on "U.S. and Canadian E&P Transactions (Focus on Small Onshore Deals, Financial Buyers Remain on Sidelines)," available at www.fitchratings.com.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.