In 2016 there have been many challenges for companies looking at acquiring oil and gas assets. Extremely low prices in February followed by a rebound in the second quarter led to delayed deals, reevaluations and additional bankruptcies. Although the stability of the market is still in question, some companies are maintaining their focus and drive and continue to acquire. They are successful in a market that very few are closing in.
In this article, we outline a way that you can tap into these highly successful companies’ A&D strategies and begin to close the deals you want.
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.
I was invited to be a guest speaker at a non-profit organization in our industry about the current state of the A&D market. It wasn’t long before the Q&A started, and a consistent theme emerged: “Where can I purchase assets?” The scraps available for purchase are slim — both in physical number and in economic feasibility.
One of the teams in attendance had a very inexpensive opportunity and wanted to know my opinion on the acquisition. “It doesn’t matter what the deal price is,” I said. “What matters is your availability to capitalize on your market share, both pre-deal and post deal.”
Companies that are able to close in this market; truly successful organizations, are asking how.
“How” is a far more important than “where.” With that being said, this is the market, so tomorrow we may enter into a different time, and “where” becomes the most important question! But for this market — today — “how” is the question: How can you build the assets to perform at a highly profitable level with potential $35 oil and sub $2 gas? How can you create seamless operations, and how can this asset fit within your current operational structure? Ask a 25-year veteran of this industry how much money a free oil well outside of his/her immediate control actually costs. There is a reason some assets are just given away.
As prices continue to rebound and economic models look better, the available deals will increase. Sellers are going to bring much more data to the table than in the past, as buyers are only attributing value to what they can see. You can expect more transactional activity in the next few months, but in order for your organization to capitalize, you have to focus on your company’s market share.
In the “Bear Strategies” article, we defined market share, as it pertains to oil and gas firms. “By using the four pillars: current area of operation, potential growth areas, types of assets and economic validity, you will be able to define your company’s core market. Within that market, identify all other companies that exist within the parameters defined above to create a competitive listing. Depending on the pillar deemed more important (area, growth potential, type, or validity) the competitive listing can be broken into market share.”
More deals are going to be available, but deals may not exist within your company’s market. Capitalizing within your market will not only consistently increase your operational and net revenues, but it will, in and of itself, expand your market, opening new doors to deals that were once considered outside your company’s area of operation.
Companies that build this market share database are the companies at the closing table. They are actively acquiring assets that fit within their market, and are doing it consistently. Take the time to build your company’s acquisition database, or contact a company that can build one for you.
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