Analysis-Market for U.S. oil acreage booms along with crude price
recovery
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[June 07, 2021] By
David French
(Reuters) - A recovery in the price of oil
to more than two-year highs is offering a long-awaited opening to
companies and private equity firms to shed unloved assets in the U.S.
oil patch.
Sales of land parcels worth $6.9 billion have been announced in the
first five months of 2021, almost eclipsing the $7 billion recorded in
all of 2020, according to data vendor Enverus. Last year was the worst
for U.S. acreage sales since at least 2006, after energy prices plunged
due to coronavirus-related demand destruction.
More deals are on the way. Land worth more than $12 billion is either up
for sale or being prepared to come to market in the United States,
according to more than a dozen investment bankers and industry sources
interviewed by Reuters.
A 43% rise in U.S. crude prices this year to their highest since October
2018 has made unloved acreage desirable enough for a small group of
buyout firms, as well as some publicly listed energy companies with
money to spend.
Those seeking to sell are oil and gas exploration and production
companies seeking to pay down debt and redeploy capital for new
drilling, and buyout firms that are often nursing losses on bets that
went sour.
The sale of these properties could lead to their development, often
following years of underinvestment, boosting U.S. energy production to
meet growing demand, as the world economy recovers from the COVID-19
pandemic.
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In one such example, Occidental Petroleum Corp is marketing 25,000 net
acres (101 square kilometers) in the Delaware portion of the Permian
Basin, likely fetching upwards of $550 million, two sources said. The
company has targeted raising more than $2 billion from divestments in
the first half of 2021.
Occidental did not respond to a comment request.
Ovintiv Inc completed in mid-May the $880 million sale of its Eagle Ford
position in south Texas to Validus Energy, and subsequently said it
would repay debt worth $1.1 billion.
Laredo Petroleum Inc agreed last month to sell a 37.5% stake in the
hydrocarbons extracted from land in two Texas counties to alternative
capital provider Sixth Street Partners. It plans to redeploy the
proceeds to partly fund the $715 million acquisition of private
equity-backed producer Sabalo Energy, whose adjacent acreage will give
it scale in drilling.
"The market is robust, especially when compared with this time a year
ago. We are putting some money to work, but we are also seeing
opportunities to exit, " said Jason DeLorenzo, managing partner at
buyout firm EnCap Investments.
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![](../images/060721pics/busine23.jpg)
An oil pump is seen operating in the Permian Basin near Midland,
Texas, U.S. on May 3, 2017. REUTERS/Ernest Scheyder/File Photo
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Exxon Mobil Corp has said it may divest parts of its shale gas business in North
America. Sources said the company has intimated to potential buyers this could
start shortly.
Exxon declined to comment.
Publicly listed companies currently pursuing acreage sales include Occidental,
Chevron Corp and Whiting Petroleum Corp, according to marketing documents seen
by Reuters, as well as ConocoPhillips and Callon Petroleum Co, according to
sources.
Callon declined comment. Chevron, Whiting and ConocoPhillips did not respond to
comment requests.
PRIVATE EQUITY DEALS
The dealmaking upturn is also a boon for private equity firms. Many of them
bought land in the mid-2010s to exploit it just enough to prove its production
viability and sell it at a profit. They were left nursing losses after a
late-2018 drop in energy prices scared off potential buyers.
Delaware Basin producer Advance Energy Partners, majority owned by EnCap, is
exploring a sale that could value it at around $2 billion, people familiar with
the matter said.
Advance did not respond to a comment request.
Private equity firm Warburg Pincus asked for indicative acquisition offers for
North Dakota producer RimRock Oil and Gas in recent weeks, a deal that could
exceed $500 million, according to sources.
Warburg declined comment. RimRock did not respond to a comment request.
The Permian and North Dakota's Bakken have seen strong deal activity in 2021 as
buyers focus on shale basins with the cheapest production costs. EnCap-backed
Grayson Mill Energy bought the Bakken shale assets of Equinor earlier this year
for $900 million.
However, land in some Western U.S. shale fields, such as the Uinta in Utah and
Colorado's Denver-Julesburg, has drawn limited interest because of regulatory
concerns, including the Biden administration's halt on new drilling leases on
federal land.
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(Reporting by David French in New York; Additional Reporting by Shariq Khan in
Bengaluru; Editing by Greg Roumeliotis and Marguerita Choy)
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