The Permian Basin in Texas has been a hotbed of activity in the oil and gas industry, with numerous mergers and acquisitions reshaping the landscape. The recent $29 billion buyout of Endeavor Energy Resources by Diamondback Energy is just the latest in a string of deals that have consolidated production in the hands of a few large companies. As the dust settles, attention turns to who may be the next target for acquisition.
One potential candidate is Mewbourne Oil, a well-established privately held Texas firm. With a substantial asset base in the Permian Basin and smaller holdings in the Anadarko Basin, Mewbourne controls over 360,000 barrels of oil equivalent per day in production, placing it among the top 10 producers in the region. If the owners of Mewbourne decide to sell, it could be an attractive opportunity for companies seeking a Permian-centric deal.
Another company that could be on the radar is Coterra Energy, formed through the merger of Cimarex and Cabot Oil & Gas in 2021. Coterra has a sizable asset base in the Permian, on par with Mewbourne, but also holds significant holdings in the Marcellus Shale and Anadarko Basin. A buyout of Coterra by a larger company like Chevron or ConocoPhillips would not only be more complex but also more focused on gas assets. It might require significant post-close efforts to divest non-core assets.
Ovintiv, formerly known as Encana, is another corporate operator with diverse assets in the US and Canada. While its Permian holdings alone make it an attractive target, the complexity of its overall asset portfolio adds another layer of consideration for potential buyers. Nonetheless, with over 200,000 barrels of oil equivalent per day in Permian production, Ovintiv could garner interest from a variety of buyers.
One notable player that often goes unnoticed in discussions of potential acquisitions is EOG. This independent producer boasts a massive Permian position, but also operates in other major basins such as the Bakken, DJ Basin, and Eagle Ford. In fact, EOG has assets in a multitude of regions, both domestically and internationally, creating complexities in deal valuations and absorbability. While EOG's diverse holdings have made it less attractive in recent years, its Permian footprint alone could make it a coveted target.
Devon Energy, another under-the-radar growth independent, has a significant equity Permian production of 478,000 barrels of oil equivalent per day. Like EOG, Devon operates in several US shale basins, but it might present fewer complexities as a takeover target due to its focus on fewer regions. Recent rumors suggest that Devon may be interested in acquiring EnerPlus to diversify its asset holdings into the Marcellus shale and bolster its position in the Bakken.
One reason why companies like EOG and Devon Energy rarely emerge as takeover targets is that they may not be actively seeking to be acquired. Many of the deals that have fueled the shale consolidation trend have involved companies with assets in a single basin, preferably contiguous to the acquirer's existing assets. These simple deals create economies of scale and necessitate fewer follow-on activities like divestitures of non-core assets. With fewer of these types of deals available in the Permian Basin, the M&A action may slow down in 2024 compared to the frenetic pace of 2023.
In conclusion, despite the potential for some attractive deals in the future, it appears that the surge in upstream mergers and acquisitions witnessed in recent years may not be replicated in 2024. The Permian Basin has seen significant consolidation, leaving fewer sizable companies ripe for acquisition. However, as companies like EOG and Devon Energy explore options to optimize their asset bases, it may signal their readiness to make themselves more appealing to potential buyers. Time will tell how the M&A landscape unfolds in the Permian Basin and beyond.
