Public Firms Turn to Private Equity-Sponsored E&Ps

Energy data analytics and SaaS technology company Enverus recently released 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 second quarter 2019 and is tied for the most announced deals higher than $1 billion since 2014.

In second quarter 2021, 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.

“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,” says Andrew Dittmar, Enverus senior M&A analyst. “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 percent 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. 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.”