It's become the "year of capitulation" that many predicted for the oil and gas industry given continued low commodity prices, with companies laying off workers and cutting capital expenditures to stay alive. Now come the divestitures.
So, who's selling? Analysts at energy-focused investment bank Tudor, Pickering, Holt put out a report this week saying that many exploration and production companies are increasingly evaluating divestitures as a way to raise funds. "A sharp reduction in drilling activity is forcing introspection by E&Ps about which programs belong in the portfolio on a go-forward basis," they said.
To that end, the analysts put together a list of companies in which asset sales are "mission critical" and those in which divestitures will help but aren't "crucial."
Among the biggest on the critical list are Chesapeake Energy Corp. (CHK - Get Report) , which has properties in the dry gas Utica area in Ohio and the Stack region in Oklahoma that could fetch $600 million (and maybe keep it out of bankruptcy).CHK data by YCharts
Consol Energy Inc. (CNX - Get Report) is on the list, too, including its properties in the Utica and northeast/Mid-Atlantic as well as coalbed methane assets that could generate $825 million in proceeds (just this week it sold its Buchanan coal mine to a private equity firm-backed company for $420 million).CNX data by YCharts
And Devon Energy Corp. (DVN - Get Report) rounds out the top three, including its 50% stake in Canada's Access Pipeline, which carries heavy oil products across the northeastern province of Alberta, which could generate $1 billion in proceeds plus noncore oil and gas properties that could bring in another $1.8 billion.
However, Devon raised $1.47 billion in a stock offering last month -- despite CEO Dave Hager's previous insistence that it didn't need it -- so it can be more patient with respect to divestitures, Simmons & Co. analyst David Kistler wrote recently. That probably comes as little comfort to existing investors, who saw their shares diluted by more than 13%.DVN data by YCharts
Other potentially big sellers on the critical list include Laredo Petroleum Inc., which could sell its 49% stake in the Medallion crude oil pipeline in West Texas' Permian Basin for as much as $325 million; Oasis Petroleum Inc., which could shed its unit that handles water used for fracking wells for up to $350 million; Stone Energy Corp., which could divest its northeast assets and non-core oil and gas production in the Gulf of Mexico for as much as $475 million; and Whiting Petroleum Corp., which could jettison its natural gas processing plants and other midstream assets in the Bakken area of the Rockies for $500 million.
Southwestern Energy Corp. also has some small packages of assets it could sell, including its gas storage field for $25 million and its southwest Appalachian conventional producing fields for $100 million. But the analysts think there's a low probability that the company inks a joint venture with a moneyed partner to develop its exploration assets.
Asset sales were a hot topic on fourth quarter conference calls, with companies seeing them as another way to help close their funding gaps, Simmons & Co. International analyst Pearce Hammond wrote in a report Wednesday. "Given the magnitude of the potential sales, the acquisition and divestiture market has clearly moved to a buyer's market," he said.
This is quite a switch from this past year, when oil and gas companies held on to their best properties and only tried to sell the dregs, many times at pre-bust prices, leading potential buyers to turn up their noses.
"It's been prohibitively expensive for high quality assets, especially if a company isn't a forced seller," Ares Management private equity partner Nate Walton lamented on a panel last week at industry conference IHS CERAWeek. Adam Pierce, a managing director at distressed energy investor Oaktree Capital Management, agreed, saying his firm bid on the properties WPX Energy Inc. offered up in Colorado's Piceance Basin earlier this year but "couldn't get to the price it cleared." (The assets were sold to Kayne Anderson- and Warburg Pincus-backed Terra Energy Partners LLC for $910 million.)
Unfortunately for these cash-strapped energy firms, the list of potential buyers right now is pretty short and doesn't include a lot of foreign companies, noted Bobby Tudor, head of Tudor, Pickering, Holt. "Companies don't want to hurt their balance sheet," he said. "The buyer strike is global."
Companies can't afford to be all that selective on asset sales any more as oil prices have sunk lower -- below $30 per barrel earlier this year -- and stayed lower, meaning less money coming in to cover overhead and interest on debt taken on during the $100-per-barrel good times. "The focus is on cash," ConocoPhillips CEO Ryan Lance said at IHS CERAWeek last week.
Companies that could be helped by divestitures but aren't on Tudor, Pickering, Holt's critical list include Anadarko Petroleum Corp., which could shed non-core gas assets that might fetch $1 billion to $1.2 billion; Antero Resources Corp., which could sell some shares in affiliate Antero Midstream Partners LP for $1.9 billion; Continental Resources Inc., which could offer one-third of its Stack properties to a joint venture partner for $300 million; and Range Resources Corp., which could get rid of its Stack/Scoop properties for $125 million.
Others include Concho Resources Inc., notably some of its non-core Midland acreage in West Texas for around $150 million; Encana Corp., namely its Piceance properties for $600 million and its San Juan properties for $450 million; EP Energy Corp., including its Haynesville properties for $350 million; Newfield Exploration Co., including its properties in the Bakken, Arkoma and Eagle Ford for $1.2 billion; Pioneer Natural Resources Co., including Raton/West Texas Panhandle assets for $700 million and northern Martin properties for as much as $1.5 billion; and Rice Energy Inc., including various midstream and oil and gas properties for $1.4 billion. WPX Energy could also sell its midstream assets in the Delaware basin for $600 million.
"Executing non-core asset sales doesn't preclude an equity issuance, but it does provide breathing room and potential catalysts for financially strained companies," the analysts said. No doubt.