American Oil and Gas Reporter - May 2016 - 35

A&

SpecialReport: Acquisitions & Divestitures
While the broader merger, acquisition
and divestment market was down some
60 percent in 2015 compared with 2014,
the market for the lower-end spectrum of
the A&D business (deals valued at less
than $100 million) remained robust. Noncore asset sales, along with issuing equity
or debt, are some of the main lifelines
that oil and gas producers use to keep
their heads above water during stormy
markets. Noncore asset sales, by their
nature, tend to be scattered properties
that are valued at less than $100 million
individually.
The sealed bid and auction transaction
advisory business demonstrated resilience
in what was otherwise a painful 2015 for
the industry. In fact, EnergyNet closed
on $285 million in oil and gas assets last
year, which ranked as the highest annual
total in the company's 16-year history,
demonstrating the increased activity in
the noncore asset space.
Majors and large publicly traded independents will be shedding noncore
assets as they try to live within their cash
flows. These companies are acting proactively.
Less fortunate, distressed companies
also will be forced to sell assets. Many
of the assets held by upstream companies
that have filed for Chapter 11 bankruptcy
protection have yet to come to market,
meaning there will be a large volume of
assets in late 2016 and early 2017. Many
companies are drawing down their entire
credit lines to have cash on hand as they
ponder restructuring.
Seller's Market
The A&D market is not frozen, and
the bid-ask spread between buyer and
seller is not too wide to overcome. It may
take extra finesse and skilled negotiation,
but deals are getting done consistently.
Oddly, it still seems to be a seller's
market, at least from a competition standpoint. Neophytes to the A&D space may
think as long as they have the money to
deploy, they can buy assets at will, but
that simply is not the case.
The A&D markets have achieved
tremendous efficiency, and many times
these noncore assets will receive 10-15
offers from competing, qualified bidders
ready to close. That means there are quite
a few runner-up bidders.
In order to win the asset, many buyers
feel they must pay a premium, even in
this down market. In the sub-$100 million
space, assets are not selling for fire-sale

prices. Successful buyers, as always, must
have a competitive edge.
While the prices of oil and natural
gas have been depressed, the cash-flow
multiples buyers pay for producing assets
has held relatively steady. The key difference is that buyers are not focusing on
a six- or 12-month average, but instead
they are laser-focused on the most recent
current month's net cash flow.
For example, in a more stable commodity market, an asset package that generated net cash flow of $4.0 million a
month over 12 months might garner a 48month payout. In today's market, that
same asset may average $4.0 million/month
over six months, but the most current
month's net revenue may be only $1.5

D

Certainty of close is, many times, just
as important to sellers as getting the
highest value for a deal. A&D advisers
work to achieve both by getting the
highest value by preparing a complete
and comprehensive data package, and
then exposing the opportunity to a network
of qualified, registered bidders and broader
industry contacts. Maximizing exposure
to the market of willing and able buyers
creates competition to achieve the highest
value for assets.
Keys To Success
There are more and more assets in the
marketplace, inundating buyers with possible acquisition candidates. The assets
that transact successfully are those that

SIZING UP A&D OPPORTUNITIES
Oddly, it still seems to be a seller's
market, at least from a competition
standpoint. A&D markets have
achieved tremendous efficiency, and
many times these noncore assets
will receive 10 to 15 offers from
competing, qualified bidders ready
to close.

Chris Atherton
President
EnergyNet.com Inc.
million. Buyers will still pay a multiple of
48 months' cash flow, but it is based on
$1.5 million/month not $4.0 million/month.
Depending on the quality of the assets,
winning buyers are paying the net present
values discounted between 8 and 12 percent
of proved developed producing reserves,
based on New York Mercantile Exchange
strip pricing. Buyers pay for upside when
the proved developed nonproducing and
proved undeveloped reserves components
are valid and attainable.
Unfortunately, many PUDs are not
economic in this price regime. With the
drastic drop in rig count to 440 as of
mid-April, nonproducing, primary-term
leasehold acreage packages are becoming
difficult to sell, except in certain areas of
the Midland and Delaware basins in the
Permian, and in the Eagle Ford Shale.

are presented in data rooms that are thorough, convenient and concise. The adviser
must be diligent in qualifying potential
buyers. Equally important, the seller must
be vetted to ensure it truly is committed
to selling into this market.
Maintaining a systematic and streamlined approach is critical to facilitating
property transactions. In order to ensure
that the deals close time and again, a
platform framework must be in place
with a clear set of rules for how the sales
cycle works from start to finish. It must
be fair for both buyer and seller.
Limiting the sales cycle to 35-45 days
helps achieve certainty of close, as does
predetermining many of the key aspects of
a purchase and sale agreement, and having
both buyers and sellers agree to the specified
terms before a sale process begins.
MAY 2016 35



American Oil and Gas Reporter - May 2016

Table of Contents for the Digital Edition of American Oil and Gas Reporter - May 2016

Contents
American Oil and Gas Reporter - May 2016 - Cover1
American Oil and Gas Reporter - May 2016 - Cover2
American Oil and Gas Reporter - May 2016 - Contents
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