U.S. Shale Gas Challenges and the Next Eldorado – Eagle Ford
Mergers, acquisitions and joint ventures in the oil and gas industry
Over the last decade, drilling for shale resources has been one of the most important trends in the U.S. energy sector. The new technological advances used to extract natural gas and oil from shale have been virtually singularly responsible for an explosion of U.S. natural gas reserves. However, with attractive economics due to the high ROI probability of striking gas, shale players have accumulated significant acreage positions as well as developing reserves almost too rapidly from the perspective of their operational and liquidity capabilities.
Suddenly, small to mid-size players replaced their reserves at pace of 300% of that of the larger integrated competitors. Pure players became increasingly aggressive with their bidding and acquisition strategies while the existing infrastructure, such as pipelines, became more challenged and stretched as additional market participants entered the arena.
At that moment in time, existing and new players experienced the typical symptoms of the “Winner’s Curse” by getting caught up with the constant need for growth, easy and abundant financing and more new entrants chasing similar historical performance. Acquisition prices increased; the economics of the investments grew unfavorable and the only thing that continued to make the proposition attractive were the historically high natural gas prices. But that changed very quickly. Starting in mid-2010, unconventional gas players were faced with limited profitability and constrained liquidity for the foreseeable future, with the top-line squeezed severely due to the drop in natural gas prices and expiration of production hedges.