US shales M&A activity

A closer look at shale oil deals

The trend of consolidation in shales has gained strength year over year, with M&A deals totaling $300 billion since 2014 and average price per acre paid by buyers crossing $49,000 in 2019.

Although the lack of capital discipline and the way an acquisition is financially structured and valued could have influenced the performance of a deal, our analysis of the top 100 shale deals by value challenges conventional wisdom and suggests that:

• Buying in high-potential geology has merits, but it shouldn’t supersede the strategic rationale of dealmaking and value investing. Seventy percent of the deals by value happened in tier 1 zones at a 2–4x premium but achieved 10 percent lower productivity (adjusted) than deals in tier 2 and 3 zones
  

• Learning by experimenting with new well designs is a trait of many successful buyers, but only if these designs are optimal, and they do not have to always be extensive. Fifty-four percent of buyers after the acquisition followed an intense and expensive completion design strategy (with longer laterals and more proppants) but realized an average productivity of less than 1,100 boed.

• Acquiring adjacent acreage lowers operating costs, but there is a scope for buyers to extend these gains further by optimizing below-surface planning. Fifteen percent of operational cost savings were realized by buyers that built a contiguous acreage position, but the savings couldn’t fully offset the up-front capital burn for most.

Unlocking superior value likely requires a differentiated approach to dealmaking and to subsequent development of the assets.