For years, the option to sell your oil and gas property was to bring it to auction. The mentality is that with more bidders, the better price you receive for your property. Also, the auction company marketed the auction, so all you had to do was bring the information about your wells, geographic area, etc. And for the last 40 years, this has been the primary way to buy and sell wells.
This has built an oilfield auction culture that, from the outside looking in, looks backwards. As a company focused on off-market deals, we go right to the source. We find exactly what we are looking for and want to know if the operator would be interested in selling. The current culture forces the operator to, instead of talking with the interested party, to see how many other parties are interested in the same property. In real estate terms, that’s like someone coming to your door and offering you money for your house and you calling a realtor to put it on the market. You add in fees, time and may not get any more money for the property (or could end up losing the deal entirely).
As we visit with different companies and individuals, we hear the same problems at every meeting: “We see all of the same properties that appear on these bid sites, but those properties aren’t what we are looking for. And, on the off chance they are, we have to fight with 25 other companies to get the property. We refuse to overpay for assets, so we end up losing out on these opportunities. How can we find oil and gas properties that fit our acquisition profile, and not have to worry about our competition forcing the price up? How can we build our company operations without spending hours in data rooms, only to find that the property we want has a low NRI or astronomical expenses?”
This auction culture is slowly dying. The people that are transacting aren’t going through this bidder process, they are finding a way around it. In the same way that “roaming charges” was a fee based service – many of the millennial readers won’t even recognize that term – the “online marketing” of your property via email blast is slowly becoming a service that no one sees value in.
As we enter into Q4 of 2018, the trait that will define the quarter (and 2018) will be: steady. In quarter three we saw deal flow increase tenfold. However, the majority of these deals have been sitting on a shelf since the first quarter of 2015, waiting patiently for the price of oil to rise. These deals will continue to splash around, but the targeted acquisitions will be the cash flowing assets with development upside. Those won’t be marketed, or on any bid sites. Those you have to uncover. And in this healthy 2019 market, you’ll be able to transact consistently. You just have to have the right team finding those off-market deals