As unconventionals dominate, buyers and sellers flip

HOUSTON — Just a few years ago, the hope for a smaller exploration and production company was to get bought up by an industry giant looking to add assets to an ever-expanding portfolio.

Big oil companies were buyers. Small oil companies were sellers. But today, that dynamic has been flipped entirely on its head.

“We like to joke that the people doing the presentation and the people who are eating sandwiches while they do the presentation — everybody’s just swapped roles,” said Maynard Holt, co-president of investment advisers Tudor, Pickering, Holt & Co. “The buyers and sellers have switched.”

Now, large oil and gas companies are facing growing pressure from their investors to simplify their portfolios and focus on as few different geographic areas as possible.

At the same time, smaller “pure play” companies — which pursue activities in a single area like the Permian Basin or the Eagle Ford — are in a constant battle to add acreage to their positions, lest they run out of room to grow.

The result has been a dramatic change in the type of deals being conducted in the energy sector.

From around 2008 to 2011, Holt said, much of his firm’s business revolved around the sale of smaller companies, often backed by private equity, to larger firms. But since 2012, the larger companies have been in “spring cleaning” mode, and the buyers of their assets are smaller companies with private equity backing. He said that dynamic has accelerated over the last 18 months.

In May, Shell Oil Co. announced the sale of its Eagle Ford assets to Sanchez Energy Corp. for $639 million. It followed that up with the August announcement of its $1.2 billion sale of its Haynesville assets to Dallas-based Vine Oil & Gas LP, which was formed by private equity firm Blackstone earlier this year.

BP sold stakes in four of its Alaska oil fields to Hilcorp, a privately-owned Houston company, it announced in April, and in July, it announced the sale of 270,000 gross acres of natural gas fields in the Texas Panhandle to Amarillo-based Pantera Energy Co. for $390 million. The company is the midst of an effort to sell $10 billion in assets by the end of 2015.

Canadian oil company Encana Corp. sold its natural gas fields in Wyoming earlier this year for $1.8 billion to Fort Worth private equity firm TPG Capital.

Holt, speaking at a conference Wednesday sponsored by the law firm Thompson & Knight, estimated this half his firm’s business today revolves around large and public companies trying to streamline their business.

Household names like Shell, Exxon and Chevron are no longer the dominant buyers of acreage and businesses, he emphasized. And Asian companies have slowed down their spat of assets as well.

“You don’t come to the conclusion that you did three or four years ago , which is those companies are absolutely first on the buyer’s list,” Holt said.