By Bill Holland SNL Financial, July 17, 2015
“We see an active opportunity for intra-shale consolidation among E&Ps,” Goldman said. “Multiple shale plays have very fragmented ownership, particularly the Permian Basin, Marcellus Shale, Utica Shale and DJ Basin.”
Appalachia’s Cabot Oil & Gas Corp. and Range Resources Corp. are among the top upstream candidates to be picked off by a supermajor as those giants go hunting for M&A later in the year, Goldman Sachs Global Investment Research analysts said.
Buying oil and gas reserves on Wall Street will be cheaper than finding them in the field at current prices, Goldman said, and the majors have $150 billion ready to spend. Snapping up a healthy independent with quality acreage would go a long way to balance out the shale-light portfolios of the majors, as well as provide cost-effective reserve replacement, Goldman told its clients July 15.
“Majors own only 5% of total US shale oil resources based on our Top 420 analysis despite it being the biggest area of supply growth and productivity improvement on a global basis,” Goldman’s analysts said. “The majors have also struggled to add material volumes over time; average reserve replacement has been sub-100% for the past 5 years. As such we believe shale exposure and materiality will be top of mind for the majors in selecting M&A targets.”
The majors will have even more cash for acquisitions if they cancel marginal projects “primarily in West Africa, heavy oil projects, primarily in Canada, and then the marginal US shales and high-cost LNG projects,” the analysts wrote.
“The projects we highlight as marginal (break even >$60/bbl) have $325 billion of capex that we estimate the majors can defer and redirect towards acquisitions,” Goldman said.
Goldman screened its list of 38 E&P M&A candidates for asset quality, potential upside returns to the buyer as oil and gas prices improve, and low break-even operations.
The top targets were found to be Cabot (northeast Marcellus), Range (southwest Marcellus and Utica), EOG Resources Inc. (Eagle Ford, Permian, Barnett and Haynesville), Continental Resources Inc. (Bakken) and Pioneer Natural Resources Co. (Eagle Ford and Permian).
Other Appalachian shale players were on Goldman’s “most likely” M&A list but did not get over all three of Goldman’s hurdles.