Small to midsize companies seize M&A opportunities in the oil patch

By Paul Puri
Managing Director

Independent energy companies and private equity firms are on the lookout for opportunities in the Texas oil patch as large, publicly traded companies shed assets and jobs in the wake of oil’s price slide.

A recent private networking event in Dallas for the Texas energy sector easily drew 200 people, including large private equity firms looking for a place to deploy their funds and newly formed independent oil producers seeking advantageous acquisitions while prices are low.

The mood was generally upbeat at this event with the conversations on the many merger and acquisition opportunities presenting themselves in the Permian Basin in West Texas or in the Eagle Ford formation in South Texas, rather than morbid talk over oil’s price decline.

Texas deals are out there. Everyone from newly formed Texas firms to foreign investors have zeroed in on the state’s oil industry opportunities.

A Chinese investment company recently said it had signed a letter of intent to buy oil fields in the Permian Basin for $1.3 billion.

The industry’s oil giants also are cutting back, which could present additional opportunities for smaller, independent players going forward.

Chevron, whose earnings were down substantially in the third quarter compared to a year ago, said in late October that it would cut up to 7,000 jobs and reduce its capital spending. Exxon has also slashed expenses as it zeroes in on business fundamentals to combat the oil price slide.

The big players are still pumping from their core assets in U.S. shale formations, however, and instead are cutting back on costly megaprojects, according to a recent Bloomberg article. Shale is considered a safer option to generate cash to satisfy jittery investors, the wire service said.

Why Smaller Players See Opportunity

Not everyone can make money at today’s prices, but oil at $45 or even $40 a barrel hasn’t deterred smaller independents or large private equity firms from pursuing opportunities in Texas.

The changing fundamentals of the oil industry are due largely to new technologies that make it more efficient and cost-effective to extract oil. This shift is creating opportunities for oil producers who, in the past, may not have been able to make a profit with today’s prices but who believe they either can now or who want to invest in oil fields and distressed companies while the price is right.

Capital Alliance Corp. expects to continue to see oil companies shed noncore assets. These assets will become acquisition targets for others.

This activity likely will continue as long as oil prices stay depressed and as long as the big banks see a need to deleverage their holdings to get distressed assets off their books.