DUG Midcontinent Conference Reveals Anticipated Increase in Oklahoma M&A Activity
According to Oil and Gas Investor’s interview with Jeff Sieler, Managing Director of the Global Energy Group in Citigroup Investment Bank, ‘“36 deals over $25 million are active. Look out for M&A to come.”
He went on to say, “There are about 20 private equity-backed companies with material acreage in the Midcontinent and 50 teams working the region. The big public companies could be the consolidators in the Midcontinent.” If Encana’s recent acquisition of Newfield’s assets, especially their premium holdings in SCOOP/STACK is any indicator, it could be a wild ride in 2019. Although Newfield is not PE backed, the acquisition represents one of the largest in the Midcontinent this year. (Know which data resource they used to help with their due diligence of the Arkoma and Anadarko assets? You guessed it ... Oseberg’s Atla!)
Earlier in the year, we published a report on M&A activity generated by using the transfer data within our Atla SaaS product. We specifically analyzed trends in the SCOOP/STACK. Key takeaways:
- With Permian acreage costing a premium and the continued pipeline bottleneck until late 2019, Midcontinent resources are offering more favorable economics.
- Operators appear to be shifting their focus from the SCOOP and have their sights clearly set on the STACK.
- The SCOOP turned out to be a much gassier play than originally anticipated.
What does this mean for Midcontinent M&A activity?
Well, for starters it means the due diligence race for data to conduct valuations is on! Timely production volumes will play a critical role in negotiations as petroleum economists, analysts and reservoir engineers on both sides of the table value not only the current wells online, but also the undeveloped resource potential. If you’re using publicly filed data from the Oklahoma Tax Commission (OTC) as the foundation of your analysis, you’re likely to encounter problems with completeness and timeliness of the recorded filings. This can create some surprises when you finally get into a data room, sometimes pleasant, sometimes unpleasant, but an unexpected (and therefore unplanned for) surprise in any event.
For all the wells completed and brought online in that 5-6 month period, you're basically like a blind squirrel trying to find a nut.
So what is a potential Buyer to do?
Operators have access to their actual production data, whereas most investment banks and representatives of the Buyer rely on third-party vendors. If these data suppliers utilize the OTC information as their foundation and then fill in the missing details based on interviews and work tickets, it’s not likely to be very current. In fact, it might lag by 5 or 6 months. That’s a huge gap when you’re relying on 30- 60- 90-day IP rates to estimate the potential of a new well.
For this reason, Oseberg recently acquired a new OK production dataset. We understand the criticality of data currency when it comes to production volumes. With M&A activity projected to be strong in 2019, many leases nearing the end of primary terms with very expensive rentals and thousands of new wells coming online, the need for current production data from new wells has never been greater.
Here's a visual comparison of the Oseberg (left) vs. OTC (right) data: