AUSTIN, Texas—The dust from A&D in the Permian Basin hasn’t so much settled, but continues blowing in a vortex moving increasingly west to New Mexico.

To make sense of the dense deal making in the Permian Basin—and whether other basins in the Lower 48 will see a spillover as companies rationalize portfolios for drilling capex— Hart Energy talked with Art Krasny, managing director at  Wells Fargo Securities,  about those plays prior to his presentation at the Energy Capital Conference on April 18.

Energy Capital, Wells Fargo

Krasny sees a lot of acreage being grabbed up as large- and mid-cap upstream E&Ps reposition themselves in the Permian. Some neglected plays will get more attention than others, including natural gas sweet spots. Huge tracts of leasehold have already been swapped as companies sold off one-time “world-class” assets to focus on the Permian, Denver-Julesburg (D-J) Basin and Midcontinent.

1. HART ENERGY: Wells Fargo has handled several large-cap E&Ps’ divestments of legacy assets for a number of notable companies. What ties these deals together?

KRASNY: The paradigm shift of the last few years focused public upstream companies on a short list of basins in the Lower 48 and placed a large number of previously active plays into a “non-core” category, which includes a number of plays in the Rockies, Midcontinent, South Texas and North Texas and a few other areas.

Such non-core assets are typically gas-weighted and come with a sizable production wedge. As the new paradigm has set in, these assets make their way to the A&D market and this trend is expected to continue with billions of potential asset sales on the horizon in this asset class.

2. HART ENERGY: MLPs would have purchased some of these assets a couple of years ago. Who is buying them now?

KRASNY: In the data rooms for this asset class, buyers are primarily private companies or private-equity-sponsored teams. For quality assets in this asset class, the buyer universe is deep and the demand is robust. We are seeing very active data room participation and healthy competitive tension in these processes.

Public investors’ growing receptivity to quality plays outside of the “big three” [Permian, Bakken and Eagle Ford] certainly makes conversations about the ultimate exit much easier for the buyers of legacy assets. Private equity is now organizing around potential IPOs in regions such as East Texas/North Louisiana and even some gas- weighted plays in the Rockies.

3. HART ENERGY:  What are buyers hunting for?

KRASNY:  Buyers seek to secure cash flows delivered by patient, low-decline PDP reserves [and] obtain access to field optimization opportunities and a resource-rich stratigraphic column with an option value on technology and price recovery. All these are important attributes underpinning quality in this asset class.

In our recent engagements in the East Texas/North Louisiana region, we spent time to present the upside associated with horizontal Cotton Valley and Haynesville, given recent advancements with completion technology to make sure our sellers capture the value proposition of the ongoing play renaissance brought about by Chesapeake and other producers in the play.

4. HART ENERGY: Will the market, meaning buyers, be able to absorb so many legacy assets?

KRASNY: Over the last two years, we saw approximately $7 billion in legacy assets clearing the market on an annual basis. So far, we have seen demand outstripping supply and, as a result, asset values have been robust and the market overall has been seller-friendly. The market window is clearly open at this time.

We estimate, however, that over $25 billion of legacy assets could be earmarked for asset sale in the next 24 months. So, the market capacity for this asset class will be tested by increasing asset supply, and it is not inconceivable to see asset supply catching up with buyer demand.

5. HART ENERGY: What’s on the horizon for A&D in the Lower 48?

KRASNY: We expect several plays to be active in 2017.

We are seeing a buildup of A&D momentum in the Eastern Anadarko Basin. As Stack players move the play north and southwest, Merge accumulates well-control and Scoop core expands …  well over 600,000 net acres are positioned for a trade.

In the Eagle Ford, we see public incumbent operators shifting focus to [the] Permian and Midcontinent while [private-equity]-sponsored teams increasingly focus on the play given recent improvements in well results and Upper Eagle Ford and Austin Chalk potential. … We expect more than 550,000 net acres to change hands in the next 12 to 24 months.

We are watching a Haynesville renaissance, where … the rig count [surged] by nearly 100% in the past 12 months. Ongoing A&D activity makes East Texas/North Louisiana one of the most exciting plays in today’s environment. In the play, 1.5 million net acres are subject to expected M&A, A&D or IPO activity.

In the Rockies, we are closely watching activity in the Powder River Basin. With rig activity increasing …  [the basin]  is expected to see a round of A&D trades.

Darren Barbee can be reached at