Deals pick up in US oil and gas patch among companies flush with cash

US oil and natural gas producers have embarked on a number of new deals, looking to spend cash windfalls received after commodity prices surged after Russia’s invasion of Ukraine.

EQT, the largest natural gas producer in the US, is nearing a deal worth about $5bn to buy rival THQ Appalachia, which produces gas and owns pipelines in the prolific Marcellus shale region in the north-east US, according to sources familiar with the talks. THQ is a privately held group backed by Texas-based Tug Hill Operating and Quantum Energy Partners.

On Tuesday a $4.8bn tie-up was announced between two of the largest mineral and royalty rights holders in the Permian oilfield of Texas and New Mexico. The share prices of Sitio Royalties and Brigham Minerals have risen more than 40 per cent over the past year as exploration activity in the area has increased and high prices make drilling rights more valuable.

On Friday, oil supermajors ExxonMobil and Shell said they were selling their California-focused oil and gas producing venture, Aera Energy, to German asset manager IKAV for about $4bn.

The uptick in deals comes as high energy prices deliver a record cash haul for producers and prompt investors to rethink oil and gas sector valuations.

A recent report from the consultancy Deloitte said that US oil and gas groups are on pace to generate $275bn of free cash flow in 2022 and 2023, wiping out a decade of steep losses and transforming the finances of an industry that was ravaged by the 2020 coronavirus pandemic-driven commodity crash.

US oil prices were trading at about $87 a barrel on Tuesday, down from recent highs of more than $100 but still high enough to generate strong returns for most US oil and gas producers, analysts said.

While oil and gas companies have seen an influx of cash, they remain under pressure from shareholders to keep a lid on spending on new drilling, instead funnelling money towards share buybacks, dividends and paying down debt.

Analysts and bankers have said that oil and gas executives are also likely to turn to acquisitions to deploy cash, generate growth and consolidate a still fractured shale industry.

EQT chief executive Toby Rice has been among the industry’s most active dealmakers in recent years, buying up assets and companies around the Marcellus in a bid to consolidate the company’s position. Last year it bought rival Marcellus producer Alta Resources for $2.92bn.

Rice’s bet has paid off this year as natural gas prices have soared to their highest levels in more than a decade. On Tuesday, US gas was trading at about $8.40 a million British thermal units, although that is down from a recent high of $10 a million Btu.

EQT, asked about the prospective deal with THQ, said the group “does not comment on market speculation”.