Shale Consolidation: July Saw Smaller M&A Deals and Speculation on Shell's Permian Plans

The third quarter has so far not seen any mergers and acquisitions in the shale business that top $1 billion.


Oil and gas executives across the North American shale sector are continuing to come to the table and negotiate a steady stream of deals to consolidate portfolios. During the second quarter, the deal making amounted to more than $33 billion in mergers and acquisitions, according to data from Enverus. The energy-focused analytics firm said last month in its quarterly review the combined figure represents more than 40 deals, with seven of them topping $1 billion each.

The third quarter has so far not seen any announced transactions surpass the $1-billion mark. Instead, most deals struck in July were between mid-sized and small US-based operators. There is, however, speculation that a blockbuster sale is on the horizon after it was reported that Netherlands-based Shell may be seeking an exit from the Permian Basin in Texas and New Mexico.

Chevron, ConocoPhillips, Devon Energy, and EOG Resources are among the oil and gas companies that have been considering making a move on Shell’s holdings in the Permian, according to Reuters and Bloomberg reports published in recent weeks. The news agencies, citing unnamed persons familiar with key details, said Shell has established a data room to allow bidders to analyze its position of more than 260,000 acres of leases, most of which are in Texas' Delaware Basin half of the Permian.

The total holdings could fetch between $7 and $10 billion in a sale, according to Reuters. The news agency noted that the upper end of these estimates implies a purchase price of around $40,000 an acre, a figure that is nearly three to four times higher than several other Permian asset sales announced this year.

Here’s a quick look at some of July’s biggest merger and acquisition deals.

Contango Oil & Gas announced on 8 July a $67-million cash deal to acquire ConocoPhillips’ conventional gas assets in Wyoming. Located in the Wind River Basin, the property was producing about 78 MMcf/d as of 1 July. The Fort Worth, Texas-based Contango said the acquisition, understood to include around 44,000 net acres, will boost its average production rate by 57% in the third quarter of this year. The buyer also expects to maintain a 5% annual decline rate over the next 5 years. The deal is scheduled to be completed by the end of the third quarter. In June, Contango agreed to merge with Houston-based Independence Energy in an all-stock transaction that will create an oil and gas company with a market value of almost $5.7 billion. The combined daily production rate is estimated to be up to 114,000 BOE/D by 2022.

Wildfire Energy announced on 8 July its plan to acquire Hawkwood Energy in an all-stock transaction that will create a combined oil and gas company with an enterprise value of almost $650 million. Hawkwood shareholders will own about 50% of the equity in the combined company, with Wildfire investors holding about 50% upon closing, expected in the third quarter. Denver-based Hawkwood holds nearly 160,000 acres in eastern Texas where it produces almost 15,000 BOE/D. The Houston-based Wildfire Energy was formed in 2019 by former executives of Wild Horse Resource Development that was sold to Chesapeake Energy in 2019 for almost $4 billion.

Penn Virginia Corporation said on 12 July it was acquiring Lonestar Resources in an all-stock transaction valued at around $370 million. Both oil and gas companies are focused on oil and gas developments in the Eagle Ford Shale of south Texas. Houston-based Penn Virginia will add almost 143,000 net acres and about 38,800 BOE/D to its portfolio as a result of the deal that is expected to close by year’s end. Shareholders of the Penn Virginia will own almost 87% of the combined oil and gas company, and Lonestar shareholders will retain the remaining 13%.

Denver-based Whiting Petroleum said on 21 July it is selling oil and gas assets in the Williston Basin of North Dakota for $271 million in cash to a private company. Whiting also announced a divestment of its Redtail asset in the Denver-Julesburg Basin of Colorado for $187 million in cash to a private company. The Williston Basin transaction is inclusive of more than 8,750 acres from which 4,200 BOE/D is produced. Whiting’s sale in Colorado entails more than 67,200 acres and a daily production of 7,100 BOE/D. The separate deals are expected to close in the third quarter.