Right Back Where We Started From - Whiting and Oasis Return to Their Roots and Merge

So far, most of the merger-and-acquisition activity among crude-oil-focused producers in the COVID era has occurred where you would expect it: the Permian, which seems to dominate almost every discussion about the U.S. energy industry. More recently, though, there has been an uptick in E&P consolidation in the Denver-Julesburg Basin in the Rockies and, earlier this month, in the Bakken. There, Whiting Petroleum and Oasis Petroleum — two once-struggling producers — have agreed to a merger of equals that will create the Bakken’s second-largest producer and the largest pure-play E&P. In today’s RBN blog, we discuss the companies’ stock-and-cash deal, which will result in a yet-to-be-renamed entity with an enterprise value of about $6 billion.

As we said in Buy Buy Buy back in January, the period since the COVID-related meltdown in crude oil prices in April 2020 has been marked by the most impactful wave of big-dollar consolidation among E&Ps since the turn of the century, when a plunge in oil prices spurred deals that helped to form many of today’s supermajors and large independents. The current round of M&A hasn’t been about getting bigger for bigness’s sake. Instead, the common goals among the companies acquiring or merging have been to boost their inventories of high-margin assets, accelerate free cash flow generation, and grow shareholder returns while slashing capital and corporate expenditures.

It is not only the bigger E&Ps that are joining forces. Many small-and-midsize deals have been announced in recent months, a trend we covered last month in Baby I’m-a Want You. As we said then, these have been a mixed bag — some have been mergers, some have been acquisitions of entire companies, and others have involved purchase of specific production assets or groups of assets of particular interest to their buyers. In many cases, participants are seeking to combine acreage with complementary footprints (mostly in either the Permian or the DJ Basin) that will allow for longer lateral drilling, more efficient operations, and enhanced production capacity that would be difficult to achieve independently.

The Whiting-Oasis merger we zero in on today fits nicely between the big and small-to-midsize M&A activity we discuss in those blogs. Whiting and Oasis have very similar backstories, including long histories in the Bakken. Both expanded their holdings and their indebtedness at what turned out to be inopportune times, filed for federal bankruptcy protection and, after emerging from Chapter 11, divested their production assets outside the Bakken (Whiting’s in the DJ and Oasis’s in the Permian), beefed up their holdings in western North Dakota and further improved their balance sheets. (Last fall, we discussed Oasis’s recent history in Midnight at the Oasis and the sale of its Oasis Midstream Partners, a master limited partnership, to Crestwood Equity Partners in Just the Two of Us.)