Energy Prospectus

Exxon, Chevron deals set to boost oil production, CCS. E&E News.
Chevron's announcement Monday that it is planning to purchase competitor Hess for $53 billion is underscoring confidence among oil majors that fossil fuels will remain the dominant energy source for a decade or more. The all-stock purchase is slated to be the fourth-largest oil production deal of all time. It follows another massive oil shake-up on Oct. 11, when Exxon Mobil announced that it intended to acquire Permian-production powerhouse Pioneer Natural Resources in a deal valued at about $60 billion. While the specifics of the two deals differ, they signal the trajectory of the industry, said Andrew Dittmar, a director with the Enverus energy intelligence group who specializes in mergers and acquisitions. “The common thread connecting these deals is (oil and gas) majors looking to refill their pipelines to maintain production against a declining asset base as they anticipate their legacy businesses staying profitable into the 2030s,” he said Monday.


U.S. oil deal-making reshaping energy landscape amidst ExxonMobil, Chevron megadeals. Bloomberg.
Chevron Corp.’s proposed $53 billion takeover of Hess Corp. is the second megadeal this month and makes resoundingly clear a new wave of consolidation is reshaping the energy landscape. U.S. oil and natural gas companies are circling each other for potential match ups to keep investor returns growing as the nation’s prolific shale fields age. Exxon Mobil Corp. announced earlier this month it agreed to buy shale-oil producer Pioneer Natural Resources Co. for $59.5 billion, locking up new drilling sites for years to come and underpinning a bet that oil and gas will remain central to the world’s energy mix for decades ahead. “It’s an eat or be eaten world,” said Cole Smead, who helps manage $5.3 billion including U.S. energy stocks at Smead Capital Management. “People who can drive higher returns will be the ultimate owners.”

MY TAKE: These Super Majors no longer fear the WOKE gangs! Shareholders want profits.

Notes from Neal Dingmann at Truist Financial 10-24-2023

Note that Neal lists CPE, MGY and PR as Takeover Targets.

E&P: Latest Mega-Deal Likely Not Last of Energy M&A

The energy space has experienced a wave of M&A in recent months as operators
continue to find ways to extend inventory while simultaneously boosting shareholder
returns. While we have not been surprised with most of the buyers, some recent
sellers have been slightly more surprising largely due to the limited premium most have
received from the sale.

We anticipate deal flow to remain active in the coming months/quarters given 1) there
are numerous E&Ps with relatively limited tier one inventory; 2) there remains numerous
smid cap private and public companies that lack sufficient scale; 3) lack of future new
major discoveries places emphasis on operational efficiencies. In addition to several
potential private sellers, we believe several public E&Ps such as PR (Buy),
CHRD (Buy), MGY (Buy), CPE (Buy), GPOR (Buy), SWN (Buy) among others could
be acquisition targets.

Numerous Attractive Public & Private Energy Acquisitions
We currently cover 25 public E&Ps with sub-$25B market caps with many having in our
view opportune assets, inventory and production for companies looking to quickly boost
scale and shareholder return. We continue to be surprised how cheap on a historical
basis many operators trade (our small cap group currently trades at an average '24
EV/EBITDA of 3.1x versus historical average of nearly 4x and FCF yield of ~15%
versus historical average yield of ~5%) given their improved operations and balance
sheet versus not long ago.

We believe the low valuations make many E&Ps attractive
acquisition targets as larger operators could pay a premium and still show immediate
accretion. Some of our covered companies currently with the most attractive values
include CIVI (Buy), CPE (Buy), CRGY (Buy), NOG (Buy), PR, SBOW (Buy), GPOR
(Buy), and REPX (Buy) among others.

Scale Could Benefit Public Companies
Operating efficiencies have become key advantages in the E&P space as new
discoveries and/or incremental delineated areas has rapidly decelerated. We believe
a number of companies could potentially see benefits from larger size. We would not
be surprised to see operators such as CHRD (Buy), COP (Buy), CTRA (Hold), DVN
(Buy), CHK (Buy), and MRO (Buy) potentially consider adding assets given the potential
benefits larger overall operations could bring. However, we also suggest a company’s
size does not always ensure the lowest operating multiples as there are a number of
independent operators with lower cost metrics than some majors. We would highlight
FANG (Buy) and PR (Buy) as two such E&Ps that while current market caps are $30B
and $8B respectively, the companies have unit costs lower than some majors with FANG
being among the best in our coverage group.

Private E&Ps Opportunity to Take Gains
While the number of private asset sales recently slowed, we believe M&A activity for
the group could accelerate into the end of the year as the private equity owners often
like to put a big win on the board at year-end to boost their investor returns and public
operators often like to add assets late in the year to use as an activity springboard for the
next year and beyond. There remains hundreds of such private companies with assets
in the Permian, Eagle Ford, Bakken, DJ and other lessor known plays. We believe there
remains only a handful of the most elite private companies, and we do not expect these
to transact this year. However, we could still see a number of attractive private asset
sales this year likely in the Permian, and then we would not surprised to see some of
the private bellwethers sold in 2024