August 7, 2015Volume 5, No. 10
 
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Current Price Cycle Offering Compelling M&A Opportunities

Quick look at Six of the Largest US Independent Producers 


Slide

Trading at $27,000 boepd

Chesapeake Energy


August 5, 2015

Full Presentation

 Slide

Trading at $35,000 boepd

Encana


July 27, 2015

Full Presentation


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In a volatile price environment, this docFinder Alert compares leading North American E&P companies using a simple EV-to-production metric as a value basis. Wall Street continues to lure Main Street to this sector with regular articles about the riches of Exxon, Chevron and other majors and their appetite to buy into the US shale sector (now on sale), which has traditionally been the spigot feeding the riches of the independents.

Six Leading North American Resource Producers

Table

It is interesting that, assuming a 50% premium to the current stock price (a hefty premium compared to norms of about 30%), one could pay about $84 billion to buy the first three companies in the list above (Chesapeake, Encana, Devon) and get 1.8 MMboepd (or ~ 730,000 bbl/d of oil/liquids and ~6.2 Bcf/d gas) at a price of about $48,000 per daily boe of production. This simple calculation attributes no further value to undeveloped lands, cost synergies and savings or other upside within this portfolio.

It is not a stretch to believe that a major or an international NOC would make such a move. ExxonMobil kicked off the shale A&D spree in the US when it announced an intent to buy XTO in December 2009 for $41 billion. At the time, oil prices were about $75/bbl and gas prices were about $5.50/Mcf. Attributing all the deal value to the 476,000 boepd of production (18% oil) works out to a purchase price of ~$87,000 boepd. Industry history buffs should enjoy revisiting the merits of this deal, which closed in July 2010. (Full Presentation)

Nor is it a stretch to believe that a pacesetter company like EOG would also be a buyer. From the simple metrics shown above, with a single potential transaction like a buy of CHK, EOG would more than double its existing production. Using the same 50% premium assumption, such a deal would see EOG picking up 703,000 boepd for $22 billion at a metric of $31,300 boepd. EOG certainly has a strong balance sheet and dry powder.

Another interesting data point is this year’s blockbuster deal of Shell buying LNG powerhouse BG Group for about $82 billion. Clearly BG brings more than just current production, but on this metric only, Shell is picking up about 0.6 MMboepd and 3.6 Bboe of proved reserves (R/P of 15.5 years) at about $128,000 boepd.(BG 1Q15 Presentation). This is 2.5X the trio of deals hypothesized above of picking up 1.8 MMboepd for about $84 billion with the buys of Chesapeake, Encana and Devon.

Regarding Chesapeake, a purchase would bring leading positions in the Eagle Ford, Utica, Marcellus, Haynesville, Powder River Basin, Mississippian Lime and Mid-Continent. In the Utica, CHK has shut-in 275 MMcfpd to preserve value as current prices are depressed due to constrained capacity. CHK is continuing to ramp down its activity with rig counts expected to bottom at about 20 rigs in 3Q15. Production is expected to decline slightly in 3Q15.

Encana is focusing 80% of its current capital spending to four plays, Permian, Eagle Ford, Duvernay and Montney. Based on flat-price assumptions of $50 oil and $3.00 gas, all four of these plays generate returns >30%, with a lot of running room. ECA now expects 2015 cash flow to come in at a mid point of $1.5 billion..


More HOT slides and data below.
More hot slides from PLS’ docFinder database detail 2Q15 results of four large US resource-play-focused independents, including Devon, Apache, Anadarko and EOG.


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featured.slides from docFinder

Slide Slide Slide Slide

$52,000 boepd

Devon

August 4, 2015

$54,000 boepd

Apache

August 6, 2015

$66,000 boepd

Anadarko

July 29, 2015

$85,000 boepd

EOG Resources

August 6, 2015

Devon Energy has 2.8 billion boe of proved reserves and produces 674,000 boepd for a current reserve life of 11.4 years. DVN is making significant progress is all its core operating areas, Permian, Eagle Ford, Anadarko Basin, Barnett and Rockies Oil. DVN has achieved an impressive 32% production growth rate YoY and has exceeded guidance for 4 straight quarters. For 2015 full year, DVN is guiding oil growth of 25-35% and top-line production growth of 5-10%.

Apache Corp has 2.0 billion boe of proved reserves and produces 489,000 boepd (adj. for Egypt tax bbls and minority interest and discontinued ops in Australia.) for a current reserve life of 11.2 years. APA has "reloaded" and is delivering on its plan and guidance. With a new CEO, CFO, independent chairman and two new board members, APA is positioning itself for success in a volatile price environment. Its production portfolio now consists of 56% NAM onshore and 65% oil.

Pro-forma for asset sales, Anadarko now expects to produce 822,000 boepd in 2015, 38% oil. APC is creating value today and beating initial guidance by 20,000 bopd, drilling 100+ more wells with no capital increase, lowering LOE by 17% and selling $1.7 billion of assets. In addition to leading US onshore positions in the Wattenberg, Eagle Ford, Permian, East Texas and Marcellus, APC remains an active explorer with East Africa leading the way.

EOG Resources drilled and frac’d the first horizontal shale well, after Mitchell Energy frac’d the Barnett vertically. Today, EOG leads the industry in US resource plays with more than 20 years of oil inventory concentrated in the Eagle Ford and Permian. On the gas side, EOG maintains an impressive deep inventory across most major plays. EOG’s cost driven focus is paying off with impressive returns at $55 oil.

 

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