Adapting to a new era of low crude oil and natural gas prices, U.S. exploration and production companies, have been reconfiguring their portfolios to focus on a small group of shale plays whose production economics can hold up even through tough times. Among the largest producers, no company is a better example of this trend than Anadarko Petroleum, which has sold over $12 billion in assets since the beginning of 2014—including properties that generated one-third of its 2016 production—to focus 80% of its capital investment on just three U.S. plays. Since year-end 2013, Anadarko has lowered its net debt by 16%, or $8 billion, and it exited 2016 with over $8 billion in liquidity. The company forecasts 15% compound annual production growth through 2021 at current prices, with the liquids weighting of output increasing from 44% in 2015 to 65% in 2021. Today we zero in on one of the 43 E&Ps whose new-era strategies are detailed in RBN’s new Piranha! market study.
We documented the transformation of the US oil and gas industry in our study Piranha! The “Piranha-ization” Of U.S. E&P, which we summarized in last week’s blog, “Very Particular Places To Go—E&Ps Expanding Stakes In The Hottest Plays: Winners & Losers.” Piranha! is based on an in-depth assessment of the reconfigured U.S. E&P sector, and covers 43 companies that collectively produce about half of total U.S. oil and gas output, and have a total enterprise value of over $650 billion.
Predictions of industry doom from the oil price collapse that started in mid-2014 turned out to be largely wrong. Most of the upstream industry has weathered the crisis remarkably well, primarily through the “high-grading” of portfolios, impressive capital discipline, and an intense focus on operational efficiencies. And, in vivid contrast to mega-deals, this cycle has been characterized instead by hundreds—if not thousands—of small transactions. E&Ps are concentrating their assets, and building out significant contiguous acreage positions in their core operating areas while generating funds for operations and acquisitions through equity offerings, debt refinancings, and sales of non-core assets. The strongest and most aggressive of the U.S. E&Ps have been behaving like schools of piranha, eating away at small pieces of other companies and simultaneously fragmenting and reconstituting the E&P sector, with most successful companies focusing their resources, operations and investments on a few attractive plays where an advantageous combination of geology, geography and economics provide attractive investment returns.
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