Reinventing the Deal
What's the big picture at the 2021 A&D Strategies and Opportunities Conference?
Deals took off in the first half of 2021. The second quarter alone reached a two-year high with about 40 deals representing $33 billion in value. According to Enverus, the deal environment of today is reminiscent of 2014. Post pandemic, however, there are new wrinkles for transactions — ESG and capital access among them.
As 2021 marches on, is it time to start reinventing the deal?
Topics of Discussion:
Public investor objectives—what more do they want? Despite a rise in commodity prices and capital discipline, as well as a focus on ESG, the XOP remains down compared to last year. Even large deals only move the needle so far.
Several majors signaled their interest in leaving the shale world particularly Chevron, Shell and Equinor. Why are they leaving?
In Consolidation We Trust?
How big is necessary to be relevant in the public space? Why isn't it happening faster? One basin or multiple basins? Who drives these deals? Investors have not rewarded/encouraged companies that increase drilling capital to but they like larger companies (scale) to facilitate FCF and returns to shareholders. So, does that put a premium on asset valuations?
Divestiture vs. IPO: We’ve seen a single IPO in 2021 and none in the previous two years. Is an IPO out of the question for private companies? If so, what are the implications for deals? How do small companies exit when deals for scale have dominated?
Upstaged by Up-spacing?
How does Permian (and general) up-spacing affect transactional prices and undeveloped acreage? Also, is undeveloped acreage worth still worth next to nothing in light of fewer well locations?
Infrastructure deals, particularly in the Permian Basin, are of interest to operators. The area is often described as overbuilt, but during the Texas freeze there were many difficulties associated with supply gas.
How many companies have been acquired in the past two years and what is the remaining size of the A&D space?
Where is all the cash coming from for the A&D market now that deals are moving at a brisk pace? Some public companies have seen successful secondary offerings this year. We look at sources of transactional funding including bank debt, RBL funding, and mezzanine lending. We also look at how deals were financed by foreign and domestic sources (including overseas companies and institutional investors).
Private Equity’s New Groove
Some private equity firms have moved to green energy. Others remain in the oil and gas sector. We’re also starting to see more non-op transactions or MLP-style deals for production (without any meaningful intent to drill). What are the exit strategies for PE shops and the effects of them now owning large amounts of public company stock?
Dealmaking in the New Age
How much focus is being placed on environmental concerns when a deal is made? According to PWC, 72% of acquirers always screen target companies for ESG risks and opportunities at the pre-acquisition stage. Relatedly, 7 in 10 say they integrate ESG risk and opportunities into their transformation or value creation plans. In light of the Colonial Pipeline hack, cybersecurity has also become an area of concern.
Examining deals in the Permian Basin, the Bakken and elsewhere.
Check out our agenda and speakers from this year's virtual event for an idea of what to expect: