Without doubt, 2016 was the year the Permian Basin announced somewhat imperiously to the world that it’s “kind of a big deal.”

Unlike amnesiac action hero Jason Bourne, the Permian Supremacy never drifted far from industry thoughts—and E&P companies paid up. In one deal, QEP Resources Inc. paid $59,000 for each desert-like, undeveloped acre it bought in hopes of cultivating the oil reserves below.

In fourth-quarter 2016 alone, an astounding 57% of all deal value—about $12 billion for 400,000 net acres—was bought and sold in the Midland and Delaware basins, according to a Raymond James analysis.

Buyers sought the Wolfcamp, Spraberry and Bone Spring horizontal zones, and investors thanked them with spiking stock prices.

As Bryan Sheffield, chairman and CEO of Parsley Energy Inc., observed at the NAPE Summit business conference in February, even deals that weren’t particularly well-priced were rewarded by the market.

“Even as companies are viewed as overpaying, sometimes their stock goes up,” Sheffield said. He noted that the November 2014 purchase by Encana Corp. of 140,000 net Midland Basin acres from Athlon Energy Inc. for $7.1 billion was a boon for Encana’s stock.

“Encana stock traded up 5% that day, even though people thought they had paid too much for that acquisition at that moment in time,” Sheffield said. “The same thing happened when Noble [Energy Corp.] bought Clayton Williams Energy Inc. Noble’s stock traded up 7% the day of the announcement.”

While 2016 was a tour de force for the Permian—and more specifically the Delaware Basin—other basins did well as stability in oil prices shook off a lack of E&P confidence.

A&D rebounded from a dismal 2015, in which deal values sank to $34.89 billion, Raymond James said. In 2016, deal values reached nearly $65 billion, including $21.6 billion in the fourth quarter alone. The Permian has held up through first-quarter 2017, with $14 billion in announced transactions.

With deal-making box office returning to form, E&Ps made strategic moves, unusual buys and the kind of slick transactions the industry loves—or can’t quite figure out.

One Deal To Rule Them All
Buyer:
Diamondback Energy Inc.
Seller: Luxe Energy LLC
Basin: Delaware

The Premise: You don’t need Jean-Paul Sartre to spell this out: buy low, sell high.

The Deal: Diamondback Energy adds credibility to the Delaware Basin with the purchase of Luxe Energy’s acreage, starting an avalanche of deals in the basin that routinely eclipsed $30,000 an acre.

Plot Summary: Luxe Energy made its first large Delaware Basin buy in January 2016 with the purchase of roughly 17,000 net acres from Endeavor Energy Resources LP and Finley Resources Inc. for about $235 million. However, the company seemingly hit a boundary of about 20,000 acres with little room for expansion.

“We wanted to be bigger,” Lance Langford, Luxe CEO and president, told Oil and Gas Investor. Langford considered taking Luxe public, but gave former Burlington Resources colleague and Diamondback president Travis Stice a call. Stice was interested in entering the Delaware, and a deal was born.

The Sweet Spot: Luxe’s initial purchase rang up at about $10,970 per acre, according to Wunderlich Securities. By July, Luxe flipped the acreage to Diamondback for $560 million—resulting in a return on investment of 2.5x in six months. The $36,000/acre purchase price easily beat out Concho’s $19,500/acre deal in January.

Open Season: By June, analysts at Seaport Global Securities proclaimed an official shift in the Dela-ware’s cat (in/out of the bag) paradigm, noting that Luxe executives said the only way into the basin was to “pay up.”

The Beat Goes On: Diamondback returned before the end of 2016, saying in December it agreed to purchase 76,319 net acres in Pecos and Reeves counties in Texas from Brigham Resources Operating LLC, backed by Quantum Energy Partners, in a $2.4 billion deal. The transaction ran about $27,000/acre for what Diamondback called the highest oil content region in the Delaware. The Luxe deal, by comparison, was $9,000/acre more expensive. Scott Hanold, an analyst at RBC Capital Markets LLC, noted that Brigham was one of the “last remaining large private operators in the Delaware Basin.”

Take My Land, Please
Seller: Chesapeake Energy Corp.
Buyer: Total SA
Runner-Up Buyer: Saddle Barnett Resources
Play: Barnett Shale

Briefing: Jim Cramer, the always-on, charged host of CNBC’s Mad Money, posted a Feb. 22 message on Twitter reading “I miss Aubrey so much…” with a link to an appearance on the show by then-Chesapeake Energy CEO Aubrey McClendon in 2008. While the legendary dealmaker is missed, pondering the meaning behind the tweet leads to other Chesapeake riddles. For instance, say you owned a billion-dollar stake in the Barnett Shale. How much would you pay to get someone to buy the land?

Straight Winds: Anyone from tornado country (such as Oklahoma) knows that fierce straight winds can be every bit as destructive as a cyclone. Chesapeake has been figuratively battling those gales for years in the form of debt. To reduce leverage, the company has sold billions worth of assets in Pennsylvania, Ohio, Texas and Oklahoma, including most recently sales worth roughly $900 million in the Haynesville.

The Barnett, of course, feels different. It was once the company’s crown jewel. In one 2006 deal, Chesapeake won rights owned by the Dallas/Fort Worth International Airport board with a high bid of $181 million—more than $10,000 an acre for 18,000 net acres. In August, Chesapeake found a taker for its 215,000-net acre position in the Barnett Shale—Saddle Barnett Resources.

The Twist: Chesapeake lined up Saddle Barnett with a virtual giveaway of a deal. Chesapeake would convey its 75% interest in the shale to the company. Chesapeake would also pay $332 million to get out of its midstream commitments. Chesapeake stood to gain (by not losing) $465 million in midstream expenses as well as future Barnett commitments totaling $1.9 billion. All in all, a clever bit of bargaining by Chesapeake, though the final exit costs eventually climbed to $616 million.

The Twister: In September, Total E&P USA exercised its preemption rights to acquire Chesapeake’s 75% interest in the jointly held Barnett, making it the 100% owner and operator of the assets. Total’s decision had no effect on Chesapeake’s deal, but it did raise questions.

Wind Sock: Bill Marko, managing director at Jefferies LLC, said it’s unclear why Total decided to purchase the asset. For Total, the Barnett isn’t strategic in size. On Feb. 9, Total noted its production in fourth-quarter 2016 was up nearly 5% to roughly 2.5 million barrels of oil equivalent per day (MMboe/d). The Barnett rights contributed 1% of the increase.

The Right Price: José Ignacio Sanz, Total E&P USA president and CEO, noted that the company has been in the Barnett for six years. “We have gained an in-depth understanding of the play and the technology. With the new conditions created by the exit of Chesapeake and the associated restructuring of the midstream contracts, we believe that we can extract significant value from the substantial, well located resource base of the play,” he said. Also, Total walked into a nice pile of cash. At natural gas prices of $3 per million British thermal units, the company will reap $190 million in annual free cash flow for practically nothing, RBC Capital Markets noted.

The 55,000 That Got Away
Buyer: Antero Resources Corp.
Seller: Southwestern Energy Co.
Play: Marcellus-Utica

Recap: In December 2014, Southwestern Energy Co. purchased 413,000 net acres in the Marcellus Shale from Chesapeake Energy. From the outset, the deal seemed a little weighted toward Chesapeake. Despite an estimated value of $4.5 billion, Southwestern was willing to pay $5.4 billion before adjustment brought the price down to roughly $5 billion.

The Nitty: Not quite two years later, along comes Antero Resources offering $450 million for 55,000 of those same net acres, most located in West Virginia, with rights to the Marcellus and Utica. For Antero, it’s something of a steal at $8,000/acre compared to the $13,000/acre Southwestern paid Chesapeake, Barclays said at the time. While Antero’s deal was made after gas prices had slipped by 30%, Antero paid a 38.5% discount to the 2014 price.

Additionally, about 41,000 of the net acres Antero purchased were in liquids-rich areas and overall the position added average production of 14 million cubic feet equivalent per day (MMcfe/d).

The Gritty: Any way you looked at it, the deal was a tough hit for Southwestern in a bad market. Southwestern was up against a $1.7 billion debt maturity wall hurtling toward it in 2018, said Jonathan D. Wolff, an analyst at Jefferies LLC. The deal also diluted its per-share value. However, the divestiture wasn’t in Southwestern’s immediate drilling plans and offered little production value to the company. Looked at another way, the acreage was actually less valuable to Southwestern than its purchase price because its inventory was at the tail end of its Marcellus stock.

Dirt Band: Southwestern estimates 3% production growth in 2017—essentially reversing 2016 declines. But the market reacted badly to the company’s guidance, depressing its stock 12% below the E&P index, Capital One Securities analyst Brian Velie said. Southwestern’s “emphasis on cash flow neutrality limits [its] production growth through 2018,” he said. While prudently avoiding deficit spending, Southwestern simultaneously limits its potential upside.

A Hard Day’s Night
Buyer: Gulfport Energy Corp.
Seller: Vitruvian II Woodford LLC; Quantum Energy Partners
Play: Scoop

La-La Lands? In December, Gulfport Energy said it would purchase 46,400 net acres in the Oklahoma Scoop from Vitruvian for $1.85 billion. The price suggested a $20,000/acre price to acquire half of the top 26 Scoop wells as measured by 30-day IP rates. Like Leonardo da Vinci’s famous pen and ink drawing, The Vitruvian Man, the deal ultimately put Gulfport in a slightly awkward position.

Despite adding a promising core area outside of the Utica Shale, investors have been shaking their fists or some other approximation of ire since the deal was announced on Dec. 14. In the 48 hours after the deal was made public, Gulfport shares were hammered with a 19% drop from its initial price of $26.88. That turned out to be only the beginning. Share values have continued to slump, down 33% to $18.12 on Feb. 24. Marko said the deal was a big risk for a public company to explain to its investors.

The Sullen: Unhappy Gulfport found its acquisition perhaps further complicated by announcing a budget that is a 100% year-over-year increase to roughly $1 billion. Gulfport’s $895 million drilling and completion capex (at the midpoint of guidance) includes six rigs in the Utica and four in the Scoop, with projected production growth of up to 53% compared to 2016. However, the timing isn’t ideal. The company’s Utica well costs are finally decreasing by an average $750,000, Tudor, Pickering, Holt and Co. said.

Timothy Rezvan, managing director of Americas research for Mizuho Securities USA Inc., said Gulfport management talked Scoop upside on its mid-February earnings call, “but we prefer to see Gulfport walk before it starts running.

“The allure of stacked pay will entice investors, but we believe establishing consistent results in one formation first will best serve an investor base that remains unsure of this play’s returns, relative to the Utica Shale,” he said.

Tin Lining: Clearly, “investors are not enamored with Gulfport’s entry into the Scoop thus far,” Velie said. “But keep in mind that well EUR estimates shared to date and factored into the acquisition economics have assumed” undersized style completions, while current well costs reflect more complex methods. “Current modeling expectations may be artificially low,” he said.

Gulfport is focused on the development of the Woodford, since the section’s thickness of up to 200 feet of play allows for high well density and stimulation treatment. “Including the Springer Shale locations, the 1,750 gross undrilled locations provide more than 14 years of drilling inventory,” said Pearce Hammond, a senior research analyst at Piper Jaffray & Co.

Further, Kyle Rhodes, an analyst at RBC Capital Markets, said its Scoop inventory upside could come from the Sycamore Shale, wedged between the Springer and Woodford. Drilling there has been limited but offset operators are testing the formation.

“Importantly, Gulfport ascribed no value at acquisition for either the Sycamore interval or Woodford downspacing which we think if successful could provide support/validation for Gulfport’s Scoop entry,” Rhodes said.

The Ballad Of EOG-Yates
Buyer: EOG Resources Inc.
Seller: Yates Petroleum Corp.
Basin: Permian

Big Iron: In February 2016, EOG chairman and CEO William Thomas addressed the NAPE business summit in Houston by noting that its then 561,000-net acre position in the Eagle Ford was some of the best rock in the shale. “We paid $450 an acre for it,” Thomas said. “That’s how we want to do all of our deals.” EOG has long prided itself on growing organically in the play, where its reserves increased by 250% from 2010 through 2014. The Permian Basin, however, would change EOG’s go-it-alone tune to a more family-friendly Sister Sledge melody by the end of the year as it entered talks with Yates Petroleum Corp.

Engagement Plays List: It’s the typical story. Dashing E&P meets older, enchanting E&P; falls in head-over-heels for their Permian and Powder River Basin acreage; and proposes a merger by spending $2.45 billion on the rock. The deal, consisting largely of stock worth $2.4 billion, catapulted EOG into a top Permian acreage holder, adding 186,000 acres. The deal cut out a 424,000 net-acre position for EOG in the Delaware. Yates production in second-quarter 2016 also added about 28,600 boe/d, with 48% of volumes oil.

Seating Chart: Adding to the intrigue of the deal, Yates, Abo Petroleum Corp. (ABO) and MYCO Industries Inc. are part of a New Mexico oil and gas dynasty that stretches back to the 1920s. The Financial Times reported in 2010 that the Yates family included second-, third- and fourth-generation family members involved in management of the company. In 2015, Forbes listed the family of 16 as the 109th-richest in the U.S. EOG’s securities filings show that shares distributed as part of the deal went to 39 entities, including 27 trusts and companies in the Yates’ family.

A Bolt-On, Bigly: Historically not an acquirer, EOG made the leap in what Thomas later called a “really big bolt-on.” In fact, it was the largest private company transaction of 2016 and spanned 1.6 million net acres across multiple states. EOG also added 1,700 locations to its already large Permian Basin position. The deal in New Mexico and western Reeves County, Texas, also signaled a “willingness to move outside the previously established Delaware core,” Raymond James said in a February report.

BONUS ROUND Finally, here are a couple of other notable deals that are worth a nod, grimace or head shake.

Nonlinear Regression
In a sign of things not to come, QEP Resources Inc. purchased RK Petroleum Corp.’s Midland Basin acreage in Martin County at an enormous cost: $59,400/acre. The $600-million deal stood out at the time for being well above historical basin prices of $25,000/acre. And perhaps this is because of QEP’s own history in the Midland: in February 2014, QEP purchased 26,519 net acres in a $950 million deal. The acreage worked out to about $30,000/acre—not quite half of what QEP eventually paid in 2016.

The Permian MacGuffin
In one of the largest and most recent deals in the Delaware Basin, ExxonMobil agreed in January to purchase about 250,000 Permian acres in New Mexico from the Bass family companies. It was the only major to do an acquisition of any size in the Permian within the past year, said Sam Burwell, an analyst at Canaccord Genuity Inc.The deal carries on two major 2016 A&D themes into 2017. The seller was a private company; and the public company can arbitrage the deal with cheaper and easier access to capital, ultimately making the assets more valuable.

But the deal stands out because of the “black box” factor, Burwell said. While independent E&Ps typically tout their deals, particularly as they seek to raise equity capital, ExxonMobil’s $6.6 billion is “essentially a drop in the bucket,” he said. As a client told Burwell, “The funny thing about this XOM deal is we probably will never know if it’s any good or not.”