M&A Strategy Positions E&Ps To Maneuver Around Export Ban

FORT WORTH, Texas—With every oil bust comes a tidal wave of M&A activity that reshapes companies throughout the oil and gas industry.

Though consolidation hasn’t heated up just yet during the current downturn, for Tom Petrie, chairman of investment banking firm Petrie Partners LLC, the logic for deals so far has been different from previous cycles.

“In terms of M&A, people are going to be thinking where do I want to own oil that I have greater flexibility in terms of access not just to the U.S. market, but to the world market,” Petrie said at Hart Energy’s recent DUG Permian conference.

Besides a more global view, Petrie said a hallmark of the ongoing round of consolidation has been all-stock deals. Petrie Partners has been an adviser on three of the recent all-stock transactions, including Noble Energy Inc.’s (NBL) $3.9 billion deal to acquire Rosetta Resources Inc. (ROSE) in May.

Similar transactions have helped forge corporate deals since the downturn began in 2014.

For instance, Baker Hughes Inc. (BHI) agreed to a $34.6 billion buyout by Halliburton Co. (HAL) in November 2014. About 75% of the deal will be paid with Halliburton stock at a 41% premium to Baker Hughes’ closing price.

Since then, several large-scale transactions have used stock or MLP traded units to get deals done.

In Noble’s deal for Rosetta, the company is gaining footholds in the Eagle Ford Shale and Permian Basin. Petrie said Noble saw an opportunity to use its experience “as the leading player arguably in the Niobrara and apply it in the Eagle Ford and longer term in the Permian Basin.”

Furthermore, besides being one of the top unconventional resource plays in the U.S., the Eagle Ford presents the company with a more global opportunity due to the current ban on crude oil export in the U.S.

“What we can see when we think about that is if you’re a player today producing oil from the United States, you have very limited options unless you produce in Alaska and Eagle Ford and under the interpretation of lightly distilled condensate—you can export,” he said.

Export Ban

The ban on crude oil exports in the U.S. has exemptions, including sales to Canada, shipments of ultra-light crude known as condensate and some Alaskan and California heavy crudes.

However, industry leaders and politicians have argued the U.S. is falling behind despite the nation’s resources. Iran and Iraq have recently signaled they plan to increase their oil exports in the coming months despite the current global oil glut.

Iran has been discussing its nuclear program with world powers, which would lift sanctions the country has been struggling with against its oil exports, Petrie said. However, Congress will now have a say in the negotiations and Republican senators famously sent a letter to the country in March saying any deal could be nullified in the future.

A nuclear arms deal with Iran could bring as much as 1 million barrels a day of oil or more to the global market. To meet such production volumes, the country would need considerable investment in infrastructure, Petrie said.

"[Iran has] been struggling for a long time under the sanctions," he said. "They don't have access to as much services and equipment as they would like to have. So this million barrels a day that is talked about pretty freely in the press is not a result in my view of just turning the valve."

Lifting sanctions on Iranian oil while keeping American oil bottled up doesn’t make sense, said Sen. Lisa Murkowski at IHS CeraWeek in April. The ban on oil exports in the U.S. equates to a "sanctions regime against ourselves."

Murkowski, an Alaska Republican who chairs the Senate Energy Committee, introduced a bill to overturn the crude oil export ban last month. It has 13 co-sponsors, including one Democrat.

Petrie said if the bill survives the legislative process and the ban is lifted, Bakken oil could be sent to the Pacific Rim and the Atlantic Basin. In both cases, this would be “very beneficial for the producers in that play.”

If the U.S. is to redefine its superpower status, oil is one of the keys to improving the country’s economic outlook and geostrategic security, he said.

“We need to be importing that lower value, lower cost oil, creating upgrading transportation fuels and at the same time export our light oil and get a premium price for that,” he said.

Contact the author, Emily Moser, at emoser@hartenergy.com.