Let's Go Crazy - Ovintiv Doubles Down on the Permian's Midland Basin

It would be an understatement to say we’re sensing a trend here. Over the past couple of years, there’s been an absolute frenzy of producer M&A activity in the Permian, much of it involving big E&Ps getting bigger and private equity cashing in on assets they’ve been developing since the 2010s. The latest multibillion-dollar deal involves Ovintiv, whose recently announced plan to acquire the Midland Basin assets of three EnCap Investments-backed producers will nearly double Ovintiv’s oil and condensate output in West Texas, lower its per-barrel production costs, and add more than 1,000 well locations to its inventory. Oh, and via a separate but related deal, Ovintiv will exit the Bakken by selling its assets there to another EnCap affiliate. In today’s RBN blog, we look at what the M&A artist formerly known as Encana is up to.

In the late-and-great Prince’s 1984 hit, “Let’s Go Crazy,” he says that “If the elevator tries to bring you down, go crazy, punch a higher floor.” We’re pretty sure he wasn’t urging E&Ps to high-grade their portfolios through M&A, but he might as well have been. The upheavals of the early 2020s — a pandemic, a push to decarbonize, a land war in Europe, rising interest rates and a banking crisis, to name a few — and producers’ newfound financial discipline have spurred what you might call The Great Reshuffling, with large E&Ps building scale and inventory in what they view as their most promising, most profitable plays and, in many cases, pulling out of plays whose prospects are viewed as being less favorable.

As we said more than a year ago in Buy, Buy, Buy, the upstream oil and gas sector is in the midst of the most impactful wave of corporate consolidation since the turn of the century: ConocoPhillips acquiring Concho Resources, Chevron buying Noble Energy, Cabot Oil & Gas merging with Cimarex Energy to form Coterra Energy, and Pioneer Natural Resources gobbling up Parsley Energy and DoublePoint Energy. Since then, we’ve returned again and again to the growth-through-acquisitions story, which often had a Permian angle. In Baby, I’m-A Want You, we focused on the half-dozen Permian-related deals that Earthstone Energy completed to expand its role in both the Midland and Delaware basins. Then, in other Permian-related M&A blogs, we looked at Devon Energy’s extensive “portfolio renewal” program (Spread Your Wings), followed by reviews of Diamondback Energy’s bolt-on acquisitions of FireBird Energy and Lario Permian (West Texas in My Eye) and Matador Resources’ planned purchase of Advance Energy Partners (Harder, Better, Faster, Stronger).