Brought to you by the KPMG Global Energy Institute.
In this edition of KPMG Global Energy Institute’s Drilling Down, we asked Andy Steinhubl and Chris Click about the recent merger and acquisition transactions in the exploration and production (E&P) sector.
There have been several merger and acquisition transactions in the E&P industry this summer, including EQT Corporation’s proposed acquisition of Rice Energy. What is driving deal flow in this sector?
Recent E&P transactions represent North American producers’ attempt to sustain profitable growth during a period of potentially “lower for longer” commodity prices. Strategic players are focused on establishing and developing core positions—quality assets at scale, allowing them to deploy skill sets and technologies to enhance performance. For example, in commenting on its acquisition of Rice Energy, EQT Corporation stated that the integration of complementary positions in the Marcellus and Utica basins would “drive higher capital efficiency through longer laterals and reduce per unit operating costs through operational and G&A synergies.”
In fact, Roger Manny, the CFO of Range Resources, another Marcellus player, commented that combinations such as the above would likely lead to “more paced, prudent, and rational development” in the Appalachian area, and to a “less frantic boom and bust.” He further stated that a company like Range Resources “with quality assets…for investors who believe in the gas market” would be an attractive party to similar deals.
In addition, some players are utilizing capital to reinforce a specific technical capability. Hence, a “doubling down” on what many already see as a core position or competency can lead to lower costs and a more coherent portfolio story to take to the investment community. The recent reshuffling of oil sands assets from the hands of large independents and majors back to domestic Canadian E&Ps is a great example of this.
 Source: Rice Energy Investor Relations, United States (June 19, 2017)
 Source: SNL Financial, United States (August 2, 2017)
 Source: Hals, United States (May 1, 2017)