DALLAS (CBS 11/DBJ) — When oil prices crash in Texas, individual and collective prosperity is often defined by boom or bust.READ MORE: Proposed Texas GOP Elections Audit Would Only Look At Large, Mostly Democratic Counties
Since 2009, drillers have tapped the shale so efficiently that they flooded the global oil market, driving down prices. They are victims of their own success.
While the collapse in crude has slowed recently, gone is the exhilaration of unchecked growth. As oil shed more than $60 a barrel in six months, exploration and production companies responded by slashing capital budgets and thousands of employees.
In the oil patch and on the balance sheet, it’s now survival of the fittest.
“You’re going to see a lot of people lose their jobs,” said Ross Craft, CEO of Approach Resources Inc. in Fort Worth. “There’s just not a demand for them. You see the amount of rigs being stacked right now, it’s amazing.”
But as some companies are struggling to stay solvent, others are cashing in on the downturn by paying for premium assets at a discount. Well-positioned firms can exploit the situation and prospect for sizable deals, especially with private equity firms sitting on a mountain of capital.
“To them, this type of slowdown is a feeding frenzy,” said Craft, an industry veteran since 1980. “They can deploy capital into this sector at reduced rates. Distressed companies … you’re going to see mergers. Everybody’s trying to jockey and get something cheap.”
Energy Transfer Partners (NYSE: ETP) kicked off the year’s merger activity with its $18 billion acquisition of fellow Dallas midstream company Regency Energy Partners. Mike Bradley, CEO of Regency (NYSE: RGP), cited volatile commodity prices as the main reason the company sought a buyer.
Enlink Midstream Partners (NYSE: ENLK) has also been on a spending spree over the last four months, racking up four acquisitions worth $1 billion — and the Dallas company is looking for more, saying Wednesday that it has $700 million slated for acquisitions this year.
And in November, Halliburton (NYSE: HAL) swallowed up fellow Houston competitor Baker Hughes (NYSE: BHI) in a $35 billion transaction that creates new efficiencies in the oilfield service sector.READ MORE: Texas Star Gymnast Simone Biles To Return For Olympic Balance Beam Finals
But those deals could be overshadowed if Irving-based Exxon Mobil Corp. decides to purchase BP PLC, as some analysts predict.
Shares of BP (NYSE: BP) have fallen 13 percent in the past six months as the London-based company was ordered to pay out billions in penalties associated with the 2010 offshore oil disaster in the Gulf of Mexico.
That, combined with low oil prices, makes this the perfect time for Exxon (NYSE: XOM) to seize a company with premium assets such as BP.
Exxon’s track record indicates it isn’t afraid of pursuing acquisitions as part of a larger growth strategy. It bought Fort Worth-based XTO Energy from Bob Simpson and Ray Davis in the midst of the natural gas price collapse in 2010.
“We stay very alert to value propositions,” Jeff Woodbury, vice president of investor relations, said during Exxon’s recent earnings call. “We’ll pursue only those acquisitions that we think have ultimate strategic value and are accretive to our longer-term returns. We’re really looking for something that upgrades our portfolio and adds to our potential.”
A fortune in distress
Allegiance Capital Corp. has 10 energy deals in the pipeline now and expects to close most of them by the end of 2015. CONTINUE READING – DALLAS BUSINESS JOURNAL
Nicholas Sakelaris Staff Writer- Dallas Business Journal | Jennifer Lindgren – CBS 11MORE NEWS: Thousands Of North Texas Students Head Back To School Monday