Author: Mark Young

Canadian Natural Resources addresses oil weighting with Painted Pony purchase

Canadian Natural Resources Ltd. (CNRL) agreed to acquire Montney-focused Painted Pony Energy Ltd. this week in an all-cash deal worth C$0.69 per share, representing a total value (including debt assumed) of around US$344 million.

This acquisition of Painted Pony will help to re-balance the oil/gas split in CNRL’s portfolio as well as adding almost 200 producing wells, says Evaluate Energy Senior M&A Analyst, Eoin Coyne.

“In 2002, the oil/gas split on a production basis for CNRL was 52% in oil’s favour,” Coyne said. “This increased to reach 79% by Q2 of this year, following a series of large oil-weighted acquisitions. At a time when global events have highlighted the exposure of oil markets to demand shocks, the acquisition of Painted Pony will reduce CNRL’s oil weighting to 76% based on recent quarterly data from each company.”

Coyne also noted that the Painted Pony deal sees CNRL re-enter M&A after a relative hiatus during the first half of 2020. The table below shows the number of net producing wells acquired during the first half of each of the past five years, using analysis of monthly provincial well ownership data available via CanOils Assets. The acquisition of Painted Pony will add 197 producing wells (as per year end 2019 data disclosed by Painted Pony).

Source: Evaluate Energy M&A, via CanOils Assets

This is the second deal in the Montney for over US$100 million this quarter after an extremely quiet start to 2020 in the first six months of the year that only saw $340 million in new deals agreed for Canadian upstream assets. The first deal was an oil-weighted deal that saw ConocoPhillips acquire ~14,000 boe/d from Kelt Exploration for US$375 million in cash and the assumption of $30 million in financing obligations.

Evaluate Energy’s M&A database holds the details on these two deals as well as every upstream M&A deal around the world. Our data also includes deals from other energy sector industries, including renewable power deals. Click here for more information on Evaluate Energy’s global energy M&A database.

Evaluate Energy unveils ESG solutions

Evaluate Energy – the global oil, natural gas and renewables data and analysis business – has unveiled a suite of ESG solutions.

A focus on Environment, Social & Governance considerations is essential for energy companies worldwide. Meeting and exceeding ESG requirements is a prerequisite for new investors, for communities when granting a social license to operate, and for governments pursuing broader emissions reduction targets.

Evaluate Energy has selected a range of ESG consulting partners in Canada to deliver core ESG services. These services are detailed at this link.

Evaluate Energy’s Canadian ESG partners include:

  • Taylor Energy Advisors
  • GLJ
  • Cumulative Effects Environmental Inc.
  • CERI
  • WaterSMART

Pandemic hits global upstream M&A hard in Q2 2020

Evaluate Energy latest M&A report – available for download here – shows that just $4 billion in new deals were agreed in Q2 2020. This represents a 96% drop from an already relatively low total of $21 billion three months earlier in Q1 2020.

This was the first entire quarter to play out under the cloud of the COVID-19 pandemic and the uncertainty surrounding the industry can be seen in low deal values and low deal counts.

Source: Evaluate Energy M&A Review, Q2 2020

The report also shows that $10 billion-worth of deals agreed before Q2 were impacted by the pandemic. These include BP’s exit from Alaska and ConocoPhillips’ exit from Australia. Full details on the major deals affected directly by the pandemic are available in the report, including deals that were cancelled or had terms renegotiated.

The full report, which was released in partnership with Deloitte, is available to download at this link.


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EIA: 40 U.S. producers recorded combined impairments of $48 billion in Q1 2020

The U.S. Energy Information Administration has used Evaluate Energy data to show how 40 U.S. oil and natural gas producers collectively wrote down $48 billion worth of assets in the first quarter. These 40 publicly traded companies collectively produced 6.1 million barrels per day of crude oil and other liquids in the United States, or about 30% of all the U.S. liquids production for the quarter.

The full analysis from the EIA is available here as part of its This Week in Petroleum series.

The impairments represented 22% of the net present value of the 40 companies’ proved reserves as of the end of the previous year, according to the EIA’s analysis.

The data for this analysis, as well as further analysis in the This Week in Petroleum article conducted on capital budgets and credit facility drawdowns, was extracted from Evaluate Energy.

For more on the Evaluate Energy global financial and operating database, click here.


Key findings: North American oil hedging for 2020 and beyond

Below are three key conclusions from Evaluate Energy’s latest report on oil hedging positions for 102 North American producers heading into the second half of 2020.

  • Hedging strategies resulted in around US$15 billion in realized and unrealized commodity hedging gains combined appearing on North America’s upstream company income statements in Q1 2020. Among the companies recording the largest realized gains were Murphy Oil and MEG Energy.
  • Average hedged prices for North American producers in 2020 and 2021 are now just below US$50/bbl for all contract types based on Q1 results, with many averaging around US$45/bbl. This is a decrease of around US$10/bbl for each contract type covered in the Evaluate Energy report since the same analysis was conducted without the addition of Q1 2020 data.
  • Despite this US$10/bbl drop in average prices, the volumes of oil hedged at under US$30 or US$40/bbl – i.e. agreements put in place after the price crashed towards the end of Q1 – is actually very low in relation to all hedged volumes in place, as the chart above shows. Apache Corp. and Centennial Resource Development are among those that hedged significant volumes at sub-US$30 prices.

The full report is available to download at this link.

Evaluate Energy also held a webinar on Q1 hedging results at the start of June. You can watch a full recording of the event at this link.

For some related material, please visit our partners at the Daily Oil Bulletin:


Chesapeake Bankruptcy: Key Insights from 2010-2020 Data

From riding high to bankruptcy, Chesapeake Energy Corporation’s decline will shock many in the industry. Evaluate Energy has tracked Chesapeake’s cash and financing gap over 10 years, showing major spending above and beyond its own earnings earlier this decade.

  • Production grew 69 per cent from 431,000 boe/d to 730,000 boe/d between Q1 2010 and Q4 2014. Growth was financed only in part by organic, operating cash flow, which lagged capital expenditure.
  • Chesapeake spent almost US$30 billion more in capex between 2010 and 2014 (excluding any asset acquisitions) than it generated from operations.
  • The finance gap was covered by asset sales and debt. Over the four-year growth period, operating cash flow was half the combined sum of cash generated.

  • In late 2014, the price crash hit and Chesapeake’s typical sources of cash dried up. New debt became unavailable — the company took on a net sum of zero new debt in 2015 — and asset sales have remained a fraction of the size of pre-2014 cash inflow.
  • Despite the lack of cash generated from asset sales, the company did see its production fall to hit its operating cash flow.
  • Fast-forward to the end of 2019 and Q1 2020, and the growth that took years of heavy investment has disappeared.
  • Q1 2020 production for Chesapeake was 479,000 boe/d, only 11 per cent larger than Q1 2010 and a 34 per cent reduction on the peak production levels seen in Q4 2014. With less operating cash flow, and very little opportunity to take on debt or sell assets like before, Chesapeake’s original debt levels were looming large.

All data here was extracted from Evaluate Energy’s financial and operating database.

For more on Evaluate Energy’s financial and operating database, please click here.

Alternatively, find out about our full product range at this link.

Free Webinar – June 2, 2020: How did hedging impact Q1 results?

Q1 results continue to pour out for North American oil and gas producers, with many recording severe cuts in revenues and impairments to their asset bases thanks to COVID-19 and a lack of demand for oil.

Evaluate Energy will be holding a free webinar on June 2, 2020, focusing on how hedging strategies boosted Q1 results amongst all this turmoil. The webinar will also look ahead, showing how far companies have gone to protect themselves for the rest of 2020.

To find out more about the webinar, click here.

The webinar will build on the early estimates we were able to make from annual filings in our previous webinar that was held on May 6.
Below are some of the pricing statistics we published for that discussion, where we saw that plenty of companies had managed to hedge at over $50 for 2020.

Example Pricing Information for North American Hedging – indexed to WTI (US$/bbl)

Source: May 6 Webinar deck, to be updated for next webinar June 2, 2020

We also showed that based on all contracts or hedging positions in place for 100+ producers according to annual filings and by using WTI and Brent prices as of April 13, we would have expected over $23 billion in hedging gains for 2020 and $27 billion for all periods combined.

Source: May 6 Webinar deck, to be updated for next webinar June 2, 2020

For our next webinar we will be able to go deeper with more concrete information.

The limitation in early May, of course, was that all the data we looked at was made available before the price began to crash. Although the price did not begin to fall until mid-March, plenty of companies have had to adjust their portfolio before Q1 results were released.

Using Q1 data dated March 31 that is now available to us, we can take a better look at how companies began to respond in the immediate wake of the price crashing. This will provide you with a far better indication of:

  • How well protected North America’s oil producers are, should these lower prices stick around for the longer-term.
  • Estimated hedging gains expected in 2020 and beyond.

To sign up for the webinar and to see a full overview of the topics set to be covered, click here.

$10.7 billion in new Latin American upstream deals in 2019

Thanks to a handful of major deals valued at over $1 billion, 2019 saw the largest overall M&A spend in the upstream sector over the past five years for Latin American assets.

This is according to the latest report from Evaluate Energy, the Daily Oil Bulletin and Sproule.

The report, entitled Latin America: 2019 Upstream M&A and Drilling Activity Review, provides a detailed overview of the key M&A trends and drilling activity in Latin America in recent years. It is available to download here.

Source: Latin America M&A and Drilling Review, 2019 – Download Here.

The two largest deals took place in Suriname and Brazil – the details of each deal are provided below.

Suriname – Total enters Block 58 in deal with Apache

As the chart above shows, this one deal for $5.1 billion pushed Suriname into third place when ranking each Latin American nation by upstream M&A activity in US$ since 2014. The deal itself was a farm-in arrangement that sees Total join Apache Corp. in Block 58.
Total will gain a 50% interest in the block, with the consideration made up of a $100 million upfront cash payment and a cost-carry where Total will pay $5 billion of Apache’s development costs for the first $15 billion of development expenditure. The deal includes a bonus due to Apache on first oil, as well as royalties and ongoing cost carries if costs escalate further.

Brazil – Petrobras agrees deal with Petronas

Brazil is still Latin America’s leading nation over the five-year period covered in the report, with over $14 billion in new upstream deals agreed since the start of 2014.

State-company Petrobras has played a pivotal role in this total, especially in the past 12 months. The company agreed 10 individual asset sales last year for a total of $3.5 billion in 2019 alone. The largest of its 2019 deals was this $1.29 billion sale to Petronas, where the Malaysian company acquired non-operated interests in the Tartaruga Verde field and Module III of the Espadarte field.

More on each deal, as well as details on 2019’s other +$1 billion deal that was agreed with Peru, can be found in the report.

Also included in the report:

  • How much of an impact COVID-19 and early 2020 pressures have had on future plans across the region
  • Expert analysis from Sproule on all the latest developments for Latin America
  • Details on the largest and most significant upstream M&A activity in 2019
  • Bidding round reviews and key transactional trends
  • Information on future drilling and investment initiatives across the region
  • Country-by-country analysis for all major producing nations

Download the full report at this link.


Colombia is “Latin America’s poster child” for attracting upstream investment

Colombia’s knack for innovation and cultivating a stable, positive relationship with its E&P industry at large have been key factors for the nations success in attracting foreign investment.

This is according to Jorge Milanese, Sproule’s Regional Director for Latin America, co-author of a new report from Sproule released in partnership with Evaluate Energy and the Daily Oil Bulletin.

The report, entitled Latin America: 2019 Upstream M&A and Drilling Activity Review, provides a detailed overview of the key M&A trends and drilling activity in Latin America in recent years.

The report can be downloaded at this link.

“Colombia is such an exciting nation to watch,” Milanese said. “It is constantly on the lookout for innovative initiatives to spark outside investment, be it through bidding rounds, infrastructure development or regulatory frameworks.”

Colombia ranks fourth in terms of the total deal value for upstream transactions in each Latin American nation since the start of 2014, lagging far behind Brazil and Argentina in particular – but this is not an issue according to Jorge Milanese.

Source: Latin America M&A and Drilling Review, 2019 – Download Here

“The nation may not see the high value deals we’re more used to seeing in Brazil or Argentina for example, but it has bee a hotbed of activity with lots of transactions taking place,” he continued. “Colombia’s relationship with the upstream industry means that business opportunities present themselves very often, which can be seen in the data we include in the report.

“The sheer number of corporate deals in Colombia over the past five years, where one company acquires another, speaks volumes to the investment possibilities that exist here and how willing companies are to make significant outlays, relative to their own individual sizes.”

The report includes details on these Colombian upstream corporate M&A transactions, including the biggest deal of 2019 that involved GeoPark Ltd. acquiring Amerisur Resources Plc for around $281 million, net of cash acquired.

Also included in the latest Latin American M&A and Drilling Activity Review for 2019:

  • Jorge Milanese’s top 4 areas to watch as Colombia’s upstream industry continues to develop
  • Details on the largest and most significant upstream M&A activity in 2019
  • Bidding round reviews and key transactional trends
  • Information on future drilling and investment initiatives across the region
  • Country-by-country analysis for all major producing nations
  • How much of an impact COVID-19 and early 2020 pressures have had on future plans across the region

The report can be downloaded at this link.