Recently, I've experienced some anecdotal evidence that activity may be increasing in the upstream deal market. Of course, Chevron's acquisition of Noble puts a shine on this year's transaction value, but excluding that, there are some indications of renewed deal movement. Speaking personally, over the last few months, our firm has participated in the Section 363 sale of a non-operated Anadarko Basin package, and we’re assisting buyers with the technical evaluation of other mid-sized acquisitions, either in the market or on an unsolicited basis.
"Our firm has participated in the Section 363 sale of a non-operated Anadarko Basin package, and we’re assisting buyers with the technical evaluation of other mid-sized acquisitions, either in the market or on an unsolicited basis."
Generally speaking, there are two necessary elements to an active oil and gas transaction market: capital availability and low price volatility. Overall, there’s abundant capital in the economy, but the oil and gas sector has had a bad run over the last couple of years and many investors are wary of the space.
Despite the price volatility in the first half of 2020 related to the COVID-19 pandemic, prices have stabilized in the last couple of months and the forward curve is relatively flat. Nevertheless, the Section 363 sale I mentioned had a very robust level of interest and I have the sense there are a lot of buyers, some established and some with new money, who believe prices are probably not sustainable at this low level and that now is the time to find some attractive deals.
I took a look at Enverus' transaction database to see if there are any interesting trends to share. Although we often look at total deal value, that data is not always available, especially for deals that are still in the market or never closed. Deal value can also be skewed by one large transaction, so deal count is a useful measure of market activity. Looking at monthly counts of recently announced deals (which includes deals in the market), we can see an uptick in the last few months — perhaps this is the sign of life we’ve been looking for?
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Another brief, interesting observation is the shift in buyer interest from "acreage heavy" deals to those that are more "production focused". The chart below is presented by quarter and shows how the acreage deals have fallen as a percentage of the total deal count, while property and royalty deals have grown. Drilling deals, included in JVs below, have dropped off as well. Corporate deals have been expected for over a year and we may be seeing increased activity there as well.