M&A activity was hot in Bakken for first quarter of 2022

Author - Renée Jean

The first quarter of 2022 was one of the strongest for merger and acquisition activity, particularly in the Bakken, where the Whiting-Oasis merger of equals topped $3.88 billion dollars.

A new name for the companies has not yet been announced, but the merger was kind of a “whoa” moment in the Bakken, so WHOAsis seems appropriate for now.

The merger makes the new company the Williston Basin’s largest asset holder, and, by a hair, only the No. 2 producer. They have 972,000 net acres and 170,000 barrels of oil production per day in what is an essentially leverage free company.

Enverus analyst Andrew Dittmar told the Williston Herald the merger was indicative of a general effort by oil and gas companies in the Bakken to build enough runway to keep attracting investment.

“It’s really a play by them to get scale, which helps draw investor interest. Wall Street wants big stable E & P companies to invest in,” Dittmar said. “And then it gives them a little bit larger platform to look t additional acquisitions in the Bakken.”

The Bakken right now has some large multi-basin producers, such as ConocoPhillips and Exxon Mobil, that have good positions in the nation's No. 3 shale play, but tend to be more focused on other plays like the Permian, where there are more multi-layer production opportunities.

“We think that a company like Whiting-Oasis would like to make a run at those types of assets,” Dittmar said. “But they’re big assets, and so you need a bigger company to have a chance of being able to buy them.”

While ConocoPhillips has said in earnings call that the Bakken is a good cash generator and continues to have a place in their portfolio, Bloomberg and Reuters have reported that Exxon is exploring the possibility of selling its Bakken assets.

Like many oil majors right now, Exxon is looking at their portfolio through an ESG lens and, while the Bakken has done much to curb flaring, that increasing gas to oil ratio is already bumping against the state’s takeaway capacity. Meanwhile, as a mature play, the Bakken may not look as attractive as other plays for new pipelines to take that gas away. That adds challenges for continued oil production growth in the state, particularly for companies that want to completely eliminate flaring.

Dittmar said he does expect there will be more merger and acquisition activity in the Bakken in spite of that eventually. But the geopolitical situation right now has put a significant damper on such activity in the Bakken and beyond.

“The killer right now is just price volatility, and how difficult it is to guess where that’s going,” Dittmar said. “You know, sellers want to get paid at today’s prices, which is over $100 a barrel. Buyers are saying that, well, we really can’t pay that much, because we’re not certain this kind of pricing is here to stay. It’s just too expensive for us. So that’s creating a disconnect at getting these deals, it’s hard to get them across the finish line.”

Once the market and prices stabilize, Dittmar believes merger and acquisition activity will pick back up again in the Bakken and other shale plays, and then it will be a little easier to predict where the industry is heading as a whole.

Another limiting factor for production that may continue in the near future, however, is caution on the part of American producers. Not only do they face an uncertain regulatory environment right now under the Biden administration, but there's also a bit in that old adage, once burned twice shy.

Downturns in 2014 and 2018 sparked by willful OPEC production increases have twice burned American investors and production companies alike.

“We’ve just now finally, like in the last six months, gotten to where these companies are cashflow positive, and starting to reward their shareholders,” Dittmar said. “Shareholders really don’t want to see that change. So I think we may see, you know, a modest response in terms of production growth.”

Meanwhile, supply chains shortages and inflation are taking a further toll on the ability of production companies to ramp up, as are significant workforce shortages not just in North Dakota, but for shale patches in general, which tend to be in more remote areas.