Mergers/Profitability

Recent posts have discussed the mergers of the some companies involved in the Utica and Marcellus shale plays.

Other past discussions have discussed the profitability of wells in the Utica and Marcellus.

In the end profitability of wells and companies in genera,l will be a significant factor in the number of mergers/takeovers of companies working in the Utica and Marcellus Shales.

Another significant factor will be debt load. Many of the companies working in the Utica and Marcellus have borrowed in order to develop the acreage they own. This debt load must be factored into the cost of wells drilled.

The final factor is production and the price paid for the production.

A good example is found in the attached article. Even though it is about Halcon and it's Bakken acreage, it could be applied to companies in a similar situation here in the Utica and Marcellus.

In the end, as prices for oil, gas etc. remain low the ability of wells drilled to pay back costs will be difficult. It will be virtually impossible for companies with heavy debt load. I look for more mergers with some of the majors scooping up bargains.

http://seekingalpha.com/article/3059936-halcon-resources-economics-...

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Permalink Reply by Dexter Green on April 13, 2015 at 3:17am

M&A happens when the deal is accretive to the acquirer and there is obvious overlap.  For example, no major Utica player is going to look at HK for their Utica acreage.  If HK gets taken over it has to be by someone who has a relatively close position in the Bakken and Eagle Ford.  Of the Utica players who are most in need of a deal MHR is at the top of the list.  They are a nice target for someone like Statoil who has an acreage position close to them.  The big holdup is the debt.  Taking over a company means assuming their debt load, and right now that just seems like a terrible idea for a disciplined operator.  

Permalink Reply by Barry D on April 13, 2015 at 12:24pm

Dexter,

I agree with your thoughts.

As we have all watched these plays develop it certainly hasn't been a straight line. There have been many twists and turns. At some point in the future some of our current players will be gone.

Assuming debt is a major factor in any acquisition. But there are many ways to skin a cat.

My motivation for posting was in response to other posts about landowners owning their lease.. I expect that landowners will meet many companies along the way as assignments are made, as mergers acquisitions, joint ventures occur. This is nothing new in this industry.

Landowners should expect new owners of their lease. Just be sure each new owner complies with the terms of your lease.

Permalink Reply by Joseph-Ohio on April 13, 2015 at 1:10pm
Seems to me that another way to say the same thing (and simpler for me to understand for some reason) would be to cite that an E & P who desires a major lessee's position may just not like paying the asking price (which is probably based to a great degree on what the original lessee paid for it, their overhead, their projected profit margin and the projected production).

Just plain English J-O speak.
Permalink Reply by Joseph-Ohio on April 13, 2015 at 2:19pm
Beyond that, I think the above areas (where I think they make their 'projections') are the places they would look to make adjustments / trim the fat / find some wiggle room in a negotiation.

That's where I'd go in heavy and trim back if I were trying to make a deal anyway.
Permalink Reply by Joseph-Ohio on April 14, 2015 at 1:23am
So.......they haggle / negotiate.

That takes time' and along the way / during which, the landscape / basic framework affecting the deals also undergoes changes (with commodity price adjustments, legislative changes' etc., etc., and so forth).

Sounds like a horribly slow process.
Permalink Reply by Joseph-Ohio on April 14, 2015 at 8:00am
Undergoing changes such as the current so-called 'oil glut' depressing value of production, slowing development and causing layoffs as I read.
Permalink Reply by searcherone on April 13, 2015 at 12:41pm

Dexter, I agree that MHR is a prime take over object.   XTO/EXXON could benefit from the MHR acreage as well as Statoil.

Permalink Reply by Barry D on April 15, 2015 at 4:39pm

Just a thought...

It is predicted that oil may drop to $10.00 per BBL.

Will this spark the butying and selling of companies in the Utica and Marcellus plays ?

Permalink Reply by Joseph-Ohio on April 15, 2015 at 10:36pm
Oil @ $10.00 / barrel ?

Going out on a limb to entertain the notion.

I would say that this country of ours would be rendered a ghetto's ghetto should our leadership (industry and government) allow that to occur unchecked / without taking what some would consider 'protectionist' steps to stop it from happening.

A reason / path / circumstance to all out World War seems to me.

If all of that happened how long do you think it would remain at $10.00 / barrel ?

Could it be that's what they (all of the 'leadership') want to see happen ?

Only my thoughts and humble opinions expressed here for what they may or may not be worth.
Permalink Reply by Joseph-Ohio on April 15, 2015 at 11:56pm
Oil at $10.00 / barrel to me would represent throwing away wealth.

Who would or could drive such a scenario ?

SA ?

Could their 'Welfare State' afford it ?

Seems to me alot of businesses couldn't afford to keep the 'lights on' / stay in business and end up shutting down / laying off their workers and so on.

Hence my 'ghetto's ghetto' scenario.

What do you think ? Let that happen ? Or take steps to not let that happen ?
Permalink Reply by Barry D on April 16, 2015 at 3:14pm

It has been suggested that the government lift the ban on the export of domestically produced oil.

Not sure how that stabilizes prices.

Permalink Reply by Joseph-Ohio on April 16, 2015 at 10:13pm
Not sure at all either.

Can see how domestic market share could (for some) grow but what happens to prices on that account to me is unpredictable.

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