Posts from Tom Biracree

U.S. E&Ps’ dramatic strategic shift from prioritizing growth to focusing on cash flow generation and shareholder returns has resulted in more earnings-call talk about dividends and share buybacks and less discussion about efforts to replenish and build their proven oil and gas reserves — a critically important factor in establishing company value. The emphasis on financial results has largely masked a sizable increase in the costs E&Ps are incurring to organically replace their reserves and a significant decrease in the volumes replaced. In today’s RBN blog, we’ll analyze the weakening in reserve replacement metrics over the last two years, a trend that has led many producers to grow their reserves through M&A. 

When legendary University of Texas football coach Darrell Royal was asked how he approached important games, he frequently said, “You dance with the one who brung ya,” which meant sticking with the strategy that produced previous success. After struggling through a period of extreme price volatility in 2014-20, U.S. E&Ps finally locked onto a game plan that works: They wooed back investors and regained financial stability by focusing on generating free cash flow and returning a lot of that bounty to shareholders. In today’s RBN blog, we analyze E&Ps’ 2024 capex and production guidance, which shows that producers have embraced Royal’s concept of sticking with what works. 

Faced with sustained sub-$2/MMBtu natural gas prices and dim prospects for significant gas-demand growth until sometime next year, a number of major gas-focused E&Ps have been tapping the brakes on production and trimming their planned 2024 capex. But one company — Chesapeake Energy, slated to become the U.S.’s largest gas producer thanks to a recently announced acquisition — has taken a more dramatic step, implementing a novel strategy that will slash production by 25% but leave the E&P ready to quickly ramp up its output as soon as demand and prices warrant. In today’s RBN blog, we’ll review the 2024 guidance of the major U.S. gas producers and delve into the analysis of Chesapeake’s unusual approach. 

A Super Bowl game (and halftime show) for the ages followed up only hours later by a made-in-heaven combination of two of the largest, most admired E&Ps in the super-hot Permian? It doesn’t get any better than this, unless you’re a Taylor Swift fan too — in which case, it may be impossible for you to “shake it off.” In today’s RBN blog, we examine the newly announced plan by Diamondback Energy and Endeavor Energy Resources to combine into a Travis Kelce-sized Permian pure play with more than 800 Mboe/d of crude oil-focused production and more than 6,000 well locations with breakevens of $40/bbl or less. 

Brutal arctic cold may have chilled broad swaths of the U.S. last month, but the scorching pace of upstream M&A activity continued to be red hot, with nearly $20 billion in deals announced in January after a record-setting 2023. Last year’s transaction value totaled an astounding $192 billion, a mark 79% higher than the previous 10-year high and more than the previous three years combined. Why the surge? A wide range of factors influenced corporate decisions to grow through acquisitions rather than organic investment, including commodity prices, equity values, debt levels, operating costs, and production trends. In today’s RBN blog, we’ll analyze M&A trends through several statistical lenses and provide some insights into 2024 activity. 

In a deal the energy industry had been whispering about for months, Chesapeake Energy and Southwestern Energy will combine to form what will be the largest natural gas producer in the U.S., with 7.3 Bcf/d of production in the Marcellus/Utica and the Haynesville and ready access to the Northeast and the LNG export market — assuming the merger passes muster with federal regulators. In today’s RBN blog, we discuss the merger and why it makes sense for both E&Ps. 

Rumors about potential oil and gas mergers are always swirling, but the announcement of ExxonMobil’s record-breaking deal to acquire Pioneer Natural Resources a couple of weeks ago generated a fever pitch of speculation about potential matchups. In the past week, we’ve seen media reports of possible courtships between Devon Energy and Marathon Oil and then Chesapeake Energy and Southwestern Energy. However, it was Chevron that shocked the oil patch by swiping right on former integrated oil company Hess Corp., opting for a $60 billion acquisition of an E&P with no Permian Basin exposure. In today’s RBN blog, we analyze the drivers and implications of what is now the second-largest U.S. upstream transaction ever. 

Sometimes, courtship is better the second time around. After some previous rumors and flirting with a deal in the spring of 2023, ExxonMobil, the largest international integrated oil company, reached an agreement to acquire Pioneer Natural Resources, the largest pure-play Permian producer, for $64.5 billion, the largest-ever U.S. upstream transaction. In today’s blog, we analyze the deal that would make ExxonMobil the top Permian producer, including shifts in the focus and depth of its upstream portfolio, the integration with its existing midstream and downstream infrastructure, and its energy transition goals.

U.S. natural gas producers had a rough start to 2023, with spot prices dipping to just above $2.15/MMBtu this past spring. But optimism was abundant in midyear earnings calls on expectations that demand will eventually soar, driven largely by a near-doubling of U.S. LNG export capacity by the end of the decade. A  key question, however, is whether E&Ps have built the inventories of proved reserves to support future production increases to meet that demand. In today’s RBN blog, we analyze the crucial issue of reserve replacement by the major U.S. Gas-Weighted E&Ps.

While the weather-related headlines might still scream “summer” in some places — from stifling heat to powerful hurricanes to downpour-induced mud bogs at Burning Man in the Nevada desert — we’ve actually turned the corner into meteorological fall. Oil and gas prices have moved up from their Q2 2023 lows and supply issues, particularly for oil, are the chief concerns as the heating season approaches. Long-term production by the Diversified E&P peer group, whose production streams are weighted 40%-60% for gas and oil, respectively, are a major factor in U.S. supply. In today’s RBN blog, we analyze the crucial issue of reserve replacement by the major diversified U.S. producers.

As this brutally hot summer meanders towards Labor Day, we’re all facing rising gasoline prices as we head to the beach, to barbecues, or to the mall for back-to-school shopping. The main culprit is crude oil production cutbacks by the Russians and Saudis and the situation would likely be much more precarious were it not for strong U.S. shale output keeping gasoline prices from climbing to $5 a gallon or more — except in California, of course. Crucial to sustaining that production long-term is not just replenishing U.S. oil reserves but growing them. In today’s RBN blog, we continue our look at crude oil and natural gas reserves with an analysis of the critical issue of reserve replacement by major oil-focused U.S. producers.

On average, the landowners and other entities that own mineral and royalty interests in producing oil and gas wells receive about 20% of the gross revenues generated by those wells — and do so without any responsibility for the significant costs and complications associated with well development and production. Mineral and royalty interests have traditionally been a highly fragmented market, with most held and passed down through generations by landowners or purchased by individual investors. However, competition for these interests has become more heated in recent years with the creation of large publicly owned and private-equity-funded consolidators and a new emphasis by E&P companies on adding these higher-margin slices of revenue from leases they own and operate. In today’s RBN blog, we explain mineral and royalty interests and analyze the developments in this massive $700 billion market.

The wave of Permian corporate consolidations has continued unabated as spring transitioned into summer with the public company purchases of two EnCap-funded Delaware Basin private operators: Forge Energy, which was purchased by Vital Energy for $540 million, and Novo Oil & Gas, which was purchased by Earthstone Energy for $1.5 billion. Although the theme hasn’t changed, the funding of the transactions includes an intriguing new element — Northern Oil & Gas, which primarily invests in non-operated minority interests, partially funded the acquisitions by agreeing to take 30% and 33% interests in the assets from buyers Vital Energy and Earthstone Energy, respectively. In today’s RBN blog, we review the emergence of three public non-op-focused E&Ps — Northern Oil & Gas, Granite Ridge Energy and Vitesse Energy — and their recent evolution from consolidators of asset packages to trusted partners of acquisition-focused operators.

It’s true, the Permian is — and will likely remain — the center of attention in the U.S. oil and gas industry, not just for its massive and still-growing production volumes but also for the ongoing consolidation among producers in the West Texas/southeastern New Mexico play. But while the Permian has dominated production and M&A activity the past couple of years, Chevron’s recently announced $7.6 billion acquisition of Denver-Julesburg (DJ) Basin-focused PDC Energy highlights the potential for producers to generate significant production and profits from other major U.S. regions, including the Rocky Mountains. In today’s RBN blog, we analyze Chevron’s latest mega-deal and its impacts on the buyer, seller, and the broader oil and gas industry.

For a major oil and gas producer, organic growth over time is all well and good. But if you want next-level scale — and the economies that come with it — there’s nothing like cannon-balling into the deep end of the pool with a huge, game-changing acquisition. ExxonMobil has already done that twice — first in 2010 with the $41 billion purchase of XTO Energy, then in 2017 when it bought the Bass family’s oil and gas assets for $6.6 billion. Now it’s said to be poised for another big plunge, and to be eyeing the Permian’s largest E&P, Pioneer Natural Resources. In today’s RBN blog, we analyze a potential deal that would make Exxon the dominant producer in the premier U.S. shale play.