Rally in commodities and equities pushes upstream deals to two-year high

Enverus, the leading energy data analytics and SaaS technology company, is releasing its summary of 2Q21 U.S. upstream M&A activity. After a cold start to the year, upstream M&A resumed its scorching pace and recorded $33 billion from more than 40 deals with an announced value during the latest quarter, including seven deals worth more than $1 billion each. That is the highest quarterly value total since 2Q19 and is tied for the most announced deals above $1 billion since 2014.

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In 2Q21, the targets of the acquisitions showed a significant shift. During 2020, consolidation between public companies focused on synergies drove activity. This year, there have been only two public company tie-ups above $1 billion: Bonanza Creek Energy’s purchase of Extraction Oil & Gas and Cabot Oil & Gas merging with Cimarex Energy. Public companies instead turned to acquiring private and private equity-sponsored E&Ps headlined by Pioneer Natural Resources’ purchase of Midland pure-play DoublePoint Energy.

“The uptick in acquisition activity targeting private equity-backed E&Ps is likely a welcome relief for sponsors that were challenged to find exit opportunities over the last few years,” commented Enverus Senior M&A Analyst Andrew Dittmar. “The deals targeting private E&Ps are less about cost-cutting synergies and more about adding inventory.”

Private equity sponsors are receiving mostly buyer’s equity in these sales, with stock constituting ~70% of the value paid. “Following a rally in equities that raised the valuation for public E&Ps, their stock represents an attractive currency to buy private and PE-backed counterparts,” added Dittmar.

“As long as there isn’t a sharp retreat in commodity prices, M&A activity is likely to remain strong during the second half of 2021,” said Dittmar.

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