Enverus: Permian M&A Makes ‘Thunderous Return’

US oil and gas deals boomed during the second quarter of 2023 as private- equity (PE) firms unloaded shale portfolio investments and public companies snapped up smaller rivals, according to a report by Calgary-based analytics firm Enverus Intelligence Research.

Upstream mergers and acquisitions for the quarter reached $24 billion—almost three times that of the first quarter—with the Permian Basin retaining its hold as the center of activity, Enverus reported.

The one notable exception was Chevron’s purchase of the primarily DJ Basin-focused producer PDC Energy for $7.6 billion, though PDC has a presence in the Permian’s Delaware Basin.

There were 20 deals with an average value of $1.2 billion in the quarter, which was more than double the average for first-quarter deals, Enverus reported.

“The second quarter saw a thunderous return to Permian M&A after a relatively quiet start to the year,” said Andrew Dittmar, director at Enverus Intelligence Research. “The need for public buyers to secure quality drilling inventory has been brewing, and the pressure to make a deal has been mounting as the remaining opportunities are narrowed with each successive transaction. That, in turn, is driving higher valuations on the remaining assets.”

Top 5 US Upstream Deals of Second Quarter 2023

Source: Enverus M&A Analytics

EnCap Investments and NGP Energy Capital were the quarter's most active energy-focused PE firms, with EnCap unloading four portfolio companies for $5.8 billion and NGP selling Permian assets with two sales for a combined $4.7 billion. In total, $14 billion in PE-owned assets have been sold in 2023 and $61 billion since the start of 2021, primarily in the Permian, Enverus said.

“The formation of new private-equity-backed E&Ps hit its peak in 2017, and now, 6 years later, those investments are being unwound via sales to public companies,” said Dittmar, who added that for those that invested in the Permian, the returns are “likely substantial.”

Undeveloped inventory has sharply climbed in value over the past 12 months, with public companies more likely to pay for assets toward the margins of the basin vs. focusing strictly on the core, the report said.

“Each sale seems to bring a higher valuation than the one before. With about 20 private companies left in the Permian with more than 100 net locations, and many of those unlikely to sell, we anticipate this trend will continue,” Enverus said.

PE has not abandoned the upstream space wholesale. Still, new capital is being raised and deployed at a much-reduced pace, with PE firms in 2023 making around 10 commitments to upstream teams vs. more than 100 per year at the pinnacle of activity, according to Enverus data.

“Nearly all new commitments are going to established teams with a track record of success,” said Dittmar. “While prior success may have been found in the Permian, these groups are increasingly looking outside that basin due to high competition for Permian deals. The Eagle Ford and Williston Basin seem to be popular destinations for those priced out of the Permian.”

Public company M&A is likely to “take on an increasingly important role in the overall deal market,” the report said, with some movement in that direction having been made with deals like Chevron’s purchase of PDC Energy, as well as the merger of Baytex Energy and Ranger Oil in the first quarter and ExxonMobil’s purchase of Denbury for $4.9 billion in the third quarter.

Enverus said that for the remainder of 2023, it sees a handful of private Permian assets that are still available, and a number of these are likely to find buyers before the year is out. However, it added, that as private opportunities further dwindle, more companies are likely to consider corporate mergers with other public companies, which will likely provide the next M&A fireworks.