Some good, reader supplied articles on major m&a. Have to think the implications for TPL are many. Fewer counterparties is obvious. 2020+ counterparties will be: low levered, patient, exacting, strategic, cost disciplined, and looking to drive margins high and sustainable for as LONG as possible.
The shale-doom crowd chooses to ignore the obvious, and frankly, the most compelling pro-argument for shale that exists. Big Oil is committing resources to shale in droves. Companies are falling over each other in the attempt to land big “Shale” fish, like Anadarko. And, in so doing have laid out ambitious growth plans for this resource. BP, (BP), ExxonMobil, (XOM), and now Chevron. What are they telling us by voting for shale with their capex dollars?
It’s simple really. They are saying that their geophysical teams-which, let’s acknowledge are the best in the business, have told them that with scale, they can wring more oil and gas for less money than any other equivalent investment. What scale brings is a low base cost of production, which when combined with the high technology these companies can bring to bear on a project, turns into profits and free cash flow.
The CVX/APC deal highlights how things have changed. IOCs are no longer focused on trying to act like a small company practicing rapid innovation. Instead, they’re applying the scale and efficiencies of a big company to drilling techniques that are now well established. It’s the next stage in the Shale Revolution.
Ultimately, price and valuation are only part of the equation. Anadarko wasn’t the cheapest acquisition target for Chevron, but Chevron liked the synergies of Anadarko’s locations. Thus, every major operator in the Permian is more likely to acquire companies whose properties are adjacent to their own. A deeper dive thus becomes an exercise in not only value, but in studying maps of the Permian producers — large and small.