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Megadeal triggers M & A spree in permian



Late last week, Chevron announced its decision to acquire Anadarko Petroleum for $ 33 billion, a deal that could mark a crucial moment for the Perm Basin and the US shale industry as a whole.

The deal is generally considered potentially the beginning of a massive consolidation round in the shale industry. The Permian basin has already shifted in favor of the largest oil companies. ExxonMobil, BP and Chevron set their futures on West Texas and New Mexico. Exxon expects a production of 1 million barrels a day (mb / d) from the Permian in 2024, while Chevron had announced that it would produce 900,000 barrels a day by the same date.

The acquisition of Anadarko builds the position of Chevron in the Permian to include offshore and LNG projects in the portfolio of the oil company. Chevron's total production will be nearly equivalent to Shell and ExxonMobil and will increase to 3.6 mb / d after the integration of Anadarko. "We have always considered Anadarko as the best-positioned acreage in the sweetest spot of the Permian Delaware Basin," said Per Magnus Nysveen, Research Director at Advisor Rystad Energy. "If we combine these shale resources with Chevron's strong position in the same region, we will now see Chevron as a clear leader among all Permian players, both in terms of production growth and as a cost leader."

In fact, Chevron's primary goal was to produce 900,000 bpd in the Perm area within five years. Following Rystad's acquisition of Anadarko, the company could now reach 1

.6 mb / d, which puts it far ahead of Exxon

In the Perm region, small and medium-sized slate-boring machines are in trouble because they are not profitable, putting no pressure on them Shareholders and lately use the tough competition of the majors. Meanwhile, shale drilling has encountered production problems with interference, fatigue and a deteriorating gas-to-oil ratio. Even very large oil companies like Anadarko are not immune. Related: Permian picks up the crown as the world's top oilfield

If smaller companies can not fulfill the task, many of them may lay the keys to the majors. The biggest oil companies, such as Exxon and Chevron, have certain advantages that their smaller competitors do not offer: they can spread the costs, operate on a very large scale, and invest over a long time horizon. "Companies are starting to look at these approaches for much longer and are developing these assets like a mega-project with a complex supply chain and significant spending in concentrated areas," said Noah Barrett, energy analyst at Janus Henderson Investors, to The Wall Street Journal. "This amount of capital and logistical intensity will add well to the strengths of larger companies."

Analysts say Chevron's acquisition of Anadarko could trigger further M & A activity. "If you have large areas like Pioneer and Concho or less but more cohesive positions like Parsley Energy and you're a pure Perm producer, you're facing those majors on the radar screen," said Rob Thummel, portfolio manager at Tortoise Capital Advisors, Reuters , Reuters notes that other slate companies have seen their share price rise following the announcement of Chevron-Anadarko, a sign that investors see opportunities for an acquisition to rise. Pioneer Natural Resources, Concho Resources and Parsley Energy rose in the news. Large oil companies with offshore positions like Hess and Noble Energy.

"Chevron's deal for Anadarko escalates the race with Exxon Mobil for the Permian," said Fernando Valle and Jonathan Mardini, analysts at Bloomberg Intelligence.

The deal marks the end of a kind of Permian era. The days of die-hard mammoth pop slate boring machines probably ended years ago, but the Chevron-Anadarko deal suggests an end to the drilling for medium-sized and even large oil companies. In a few years, the Permian could be determined by the oil majors, if not exclusively, then predominantly. The majors were late, but they are sure to dominate the largest slate basin in the world.

By Nick Cunningham of Oilprice.com

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