(Corrects title to director from CEO in paragraph four)
By Mrinalika Roy
April 18 (Reuters) - Companies with a focus on the
oil-rich Permian basin are likely to be at the center of the
next wave of consolidation in the U.S. energy sector as
favorable oil prices prompt cash-rich drillers to tap into the
largest source of shale oil.
Top producers have built a war chest to fund acquisitions
after reaping windfall profit in 2022 from skyrocketing oil
prices following Russia's invasion of Ukraine.
The current oil prices are only making Permian assets more
attractive to companies looking to quickly rebuild their
depleting assets to take advantage of the world's never-ending
thirst for fossil fuel.
"I think we're in a good spot in terms of oil pricing for
M&A, somewhere around $80 per barrel is where both buyers and
sellers feel comfortable," said Andrew Dittmar, a director at
consultancy Enverus.
"For all of 2023, we're likely going to have a very active
market and we're gonna continue to see these deals hit."
At least three analysts have identified Diamondback Energy
Inc , Matador Resources Inc and Permian
Resources Corp as possible takeout targets.
These companies have the highest quality of remaining
inventory as well as strong balance sheets and free cash flow,
making them good picks, said Gabriele Sorbara, managing director
of equity research at Siebert Williams Shank & Co.
Diamondback ended 2022 with $2.8 billion in free cash flow
and proved undeveloped oil and natural gas reserves of 629,418
million barrels of oil equivalent (BOE), while Matador had $1.16
billion free cash flow and proved undeveloped reserves of 135.2
million BOE.
Permian is an obvious target for producers looking to
increase their inventory. The shale patch, which lies between
Texas and New Mexico, has the necessary infrastructure and is
known for high productivity and large undeveloped reserves.
Its proven, technically recoverable reserves are estimated
at 50 billion barrels of crude and nearly 300 trillion cubic
feet of natural gas.
Upstream activities had fallen out of favor with investors
as producers grappled with rising costs, while facing pressure
to return money to their shareholders. But a surge in oil prices
last year helped turn the tide.
Crude prices in 2022 rose to their highest
inflation-adjusted price since 2014. Brent crude touched a
record high of $139.5 per barrel last year and has averaged
$82.6 per barrel so far in 2023.
Enverus' Dittmar, who focuses on mergers and acquisitions,
expects top producers such as Marathon Oil Corp and
Devon Energy to emerge as likely buyers
Dittmar also expects blockbuster deals from Exxon Mobil and Chevron in the Permian basin in the next
couple of years. The two companies have already indicated they
are open to more acquisitions.
Last week, ConocoPhillips CEO Ryan Lance said he was
expecting more shale deals, adding that "consolidation needs to
happen" among Permian Basin energy producers.
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(Reporting by Mrinalika Roy in Bengaluru; Editing by Sweta
Singh and Anil D'Silva)
