Value Implications and Executive Perspectives from the Recent Oil Conference
Rising asset values, inventory depletion and aggressive financing were the talk of the NAPE conference. There are implications for the oil and gas industry, including Bison Insights ideas.
This past week, I attended the NAPE (North American Prospect Expo) oil & gas conference in Houston. I set up a booth on the exhibit floor to share Bison Insights, attended a dozen events, and I was able to connect with many across the industry:
I had the chance to meet with participants from across the industry, including operators, oilfield service executives, private equity allocators, and others, both on the exhibit floor and at a dozen related events I attended throughout the week. Everywhere I went at NAPE, two themes came up in conversation:
Asset values are rising, and buyers are struggling to find assets at valuations they consider attractive.
The increased use of ABS (Asset-Backed Securities) structures in oil & gas asset purchase financing has compressed discount rates and pushed asset values higher.
These themes were reinforced earlier in the week by two large transactions that were widely discussed at the conference. SM Energy divested a portion of its South Texas Eagle Ford assets for nearly $1 billion, and Ovintiv sold its Anadarko acreage for $3 billion.
Both transactions involved discounted public companies selling assets to well-capitalized private buyers at relatively high valuation multiples. And the buyers likely used complex financing arrangements (such as ABS) to fund the bulk of the acquisitions.
There are promising implications for several of the Bison Insights ideas with adjacent acreage or similar production profiles. These transactions suggest substantial further upside via potential divestitures and public market re-rating, well beyond the outperformance these ideas have already achieved since I first wrote about them.
Remarkably, all 10 of the investment ideas I’ve shared to date have now outperformed the broader energy market, as measured by the XOP oil and gas ETF:
Bison Insights ideas have also outperformed the broader stock market, such as the S&P 500 ETF SPY, and I’m working on additional ways to display this outperformance. Past performance is not indicative of future results.
There may be even more upside ahead for the ideas that I’ve shared - particularly companies with adjacent acreage and/or similar asset types to the big divestitures announced this past week. The transaction comps suggest a huge disconnect:
While there are reasons to believe that these companies may sell assets or their whole companies, there is no guarantee that they will transact soon, nor that they will achieve the multiples implied by the recent transactions. However, with these two large deals occurring near some assets of most of these companies, and with broader oil & gas asset values moving higher, it is timely to consider upside potential in this context. Below, I dive deeper into the company-specific implications of these transactions.
Disclaimer: This is for informational and educational purposes only. This is not an offer, solicitation, or investment recommendation. Please consult an advisor and do your own diligence. Past performance may not repeat itself.
