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Flurry of M&A Activity in the Gulf of Mexico

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While much of the mainstream media fixated on the slowdown in natural gas-focused shale plays and the risks of hydraulic fracturing, the upsurge of drilling activity and M&A in the Gulf of Mexico has received significantly less attention.

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During a conference call to discuss the transaction, EPL Oil & Gas' management team highlighted the longer-term opportunity to drill exploratory wells in these properties to identify new formations.

The next day, W&T Offshore (NYSE:WTI), an independent oil and gas company that traditionally has focused on the Gulf of Mexico, announced an agreement with Newfield Exploration (NYSE:NFX) to acquire all of the latter's exploration and production assets in the Gulf of Mexico for $228 million and other considerations.

Of the 78 federal offshore blocks (432,000 acres) included in this transaction, 65 of these properties are located in deep water, 10 of these fields are located on the continental shelf and three are equity interests in fields operated by other companies.

Twelve of these tracts currently produce hydrocarbons, while the other 66 blocks involved in the deal have yet to be developed. These offshore blocks, many of which are located near W&T Offshore's existing asset base, exponentially increase the firm's pipeline of exploratory projects.

Meanwhile, the developed tracts in July flowed about 8,350 barrels of oil equivalent per day. Crude oil accounted for about 37 percent of production.

The Verdict

Robust demand at the BOEM's most recent lease sale in the Gulf of Mexico, coupled with the recent flurry of acquisitions in the region, suggests that drilling activity will continue to accelerate in coming years. I continue to favor providers of marine seismic services, offshore equipment manufacturers and contract drillers, all of which stand to benefit from a tightening global market for their product offerings.

This article by Peter Staas was originally published on Investing Daily.

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No positions in stocks mentioned.
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