Megadeal triggers M & A Spree in Permian
Last week, Chevron announced its decision to take over Anadarko Petroleum for $ 33 billion, a deal that could mark a water source moment for the Permian basin and the US shale industry as a whole.
The agreement is generally seen as potentially the beginning of a massive consolidation round in the shale industry. Already, the Permian basin has quickly shifted to the benefit of the largest oil companies, with ExxonMobil, BP and Chevron targeting futures in West Texas and New Mexico. Exxon expects to produce 1 million barrels per day (mb / d) from Permian by 2024, while Chevron had announced plans to produce 900,000 bpd on the same date.
The acquisition of Anadarko is growing Chevron's position in Permian, while also adding offshore and LNG projects to the oil portfolio. Chevron's total production will jump almost to parity with Shell and ExxonMobil, rising to 3.6 mb / d after taking in Anadarko. "We have always considered Anadarko as having the best positioned area in the sweetest place in the Permian Delaware basin," says research director Per Magnus Nysveen at consultant Rystad Energy. "Combining these shale shares with Chevron's strong legacy in the same area, we now want to see Chevron as the clear leader among all Permian players, both in terms of production growth and cost management."
In fact, while Chevron's previous goal was to produce 900,000 bpd in Permian within five years, it can now reach 1[ads1].6 mb / d after taking over Anadarko, according to Rystad, and pushing it far ahead of Exxon.
Even as the large scale Up operations in the small and medium slate drillers have gone into trouble, weighed down by an inability to win, push from shareholders and more recently, the outbreak of stiff competition from the big ones. Meanwhile, slate wells have run into production problems, with well interference, depletion and a worsening relationship between gas and oil that hits the bottom line. Even very large oil companies, such as Anadarko, are not immune. Related: Permian takes the crown as the world's top oil field
If smaller businesses can't do the job, then many of them might fold and turn the keys of the big ones. The largest oil companies, such as Exxon and Chevron, have certain benefits that their less-equal peers do not: they can spread the costs, operate at very large scales, and make long-term investments. "Companies are starting to take a much longer view and developing these assets as a mega-project with a complex supply chain and significant spending in concentrated areas," said Noah Barrett, an energy analyst at Janus Henderson Investors, to the Wall Street Journal. "The amount of capital and logistical intensity will play well into the strength of larger corporations."
Analysts say Chevron's acquisition of Anadarko could provide more M&A activity. "If you have large space positions like Pioneer and Concho, or smaller but more cohesive positions such as Parsley Energy and you are a pure-play Permian producer, there is no doubt that you are on the radar screen for these majors," Rob Thummel, portfolio manager at Tortoise Capital Advisors, according to Reuters. Reuters notes that other slate companies saw their stock prices leap after the Chevron-Anadarko announcement, a sign that investors are seeing odds on acquisitions rising. Pioneer Natural Resources, Concho Resources and Parsley Energy rose on the news. It also made large oil companies with offshore positions, such as Hess and Noble Energy.
"Chevron's Anadarko agreement escalates with Exxon Mobil for Permian," said Fernando Valle and Jonathan Mardini, analysts with Bloomberg Intelligence.
The agreement marks the end of an era of varieties in Permian. The days of hardscrabble mother-and-pop shale drillers ended undoubtedly many years ago, but the Chevron-Anadarko agreement puts an end to drilling frenzy for medium and even large oil companies. Within a few years, the Permian could be defined, if not exclusively, perhaps perhaps predominantly, by the oil spills. The Majores were late for the game, but they are set to dominate the largest slate pool on the planet.
By Nick Cunningham from Oilprice.com
More top readers from Oilprice.com:
