War-Related Oil Price Volatility Leaves Shale Acquisitions In Limbo

Confusion over asset valuation as oil prices are on their wildest ride in history over Russia’s invasion of Ukraine has put some deals in the U.S. shale patch on hold, Bloomberg reported on Thursday, quoting sources with knowledge of discussions.

Some companies in the shale patch had been marketing acreage in the Permian and Eagle Ford basins, but sale processes were paused amid the oil price rally of the past weeks, according to Bloomberg’s sources.

Buyers are wary of paying too much for assets that may be overvalued at current oil prices.

The owners of Sequitur Energy Resources have not been willing to part with 83,000 net acres in the Permian because the company asked for a higher valuation than the market was willing to give, the sources told Bloomberg.  

Eagle Ford-focused exploration and production company Sundance Energy has been talking with three potential buyers, but the valuation gaps have jumped since Putin invaded Ukraine, according to the sources. For now, the owners of Sundance Energy are said to continue drilling. 

Not all potential deals are being paused. Earlier this week, Whiting Petroleum Corporation and Oasis Petroleum said they had entered into an agreement to combine in a merger of equals transaction, which will result in a company with an enterprise value of around $6 billion.  

“The combination will bring together two excellent operators with complementary and high-quality assets to create a leader in the Williston Basin, poised for significant and resilient cash flow generation,” Oasis’ chief executive Danny Brown said.

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Upstream M&A deal flow could hit the highest in years in 2022 if commodity prices hold steady, WoodMac analysts said in their 2022 outlook of the global upstream published in January.

“Companies’ ability to finance and execute acquisitions improved immeasurably through the course of 2021 – we can see this clearly in the increasing number of larger cash asset deals. If commodity prices remain elevated, the ability to execute transactions will only increase through 2022,” the authors of the outlook said. 

By Michael Kern for Oilprice.com 

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