It’s a new year, and the oil and gas market is hungry for assets. There are companies all over the map looking for good quality assets, but the transactions are not happening. We have noticed a considerable amount of deal flow in the past few months, as seller’s have seen this period as a market shift in their favor. So, with a number of deals available, willing sellers, and active buyers, why are there not more transactions?
Beachwood has seen a number of transactions in 2017, and it’s because we’ve seen companies that are looking to sell follow a few crucial steps.
#1 Don’t put your deal to auction
If you are a buyer in this market, you are running the exact same economic model as every other company in the auction. So, if you are a seller, you can expect 30 or so bids on your assets that are only a few dollars from one another. More than likely it is based on PV10 (or close) and offers no value on the upside you see for your asset. This should be a last resort for operators and owners that are looking to get PV10 on assets with positive cash flow, and slightly higher than zero for assets in the red.
#2 Make sure you give data
Companies that are looking to buy your assets want to know what you know. If you know that production is down because of a land issue or a new pumper, that information is very valuable to a buyer. Big data is everywhere. Most of your production, decline curves, reservoir information and estimated expenses are available or easily accessible. The upside storyline of each asset is what will bring additional value to your sell price. Buyers want to know as much information as possible. Don’t view this as a waste of time, understand that this data will (in many cases) increase the chances of closing quickly.
#3 Know the market value
With that being said, you as a seller need to know the market value. We all want to live in 2013. It was fun. But the reality is that asset is worth half of what it was in 2013, and the decline curve has continued to move 5 years down the line. Knowing the estimated value of your assets gives you great leverage toward a quick close.
As I say in every article I publish, every deal is different. Our strategy is generalized and can be used as discussion points for your A&D team, or your contract divestiture organization. The team at Beachwood is always available to discuss your company specific questions, just give us a call: (405) 463-3214.