Whether bolting on a few assets or merging an entire organization with a buyer, acquisitions are a long-standing tool for oil and gas companies to grow their business, as the recent wave of consolidation illustrates. For some, achieving their growth objectives involves holding acquired assets, enhancing them, and divesting them for profit.
Successfully executing an acquisition and divestiture (A&D) growth strategy requires operators to overcome key challenges: effectively screening and valuing properties, swiftly integrating new assets for low-cost operations, and optimizing assets for maximum sale value.
Potentially expanding the A&D opportunity set further, private equity has returned to the oil & gas industry in a big way, with Hart Energy reporting $20 billion raised in the weeks leading up to the US presidential election in the fall of 2024. This estimate likely includes the $6.4 billion announced by EnCap in October when it successfully closed funding for its Energy Capital Fund XII, exceeding its target. This may signal a new wave of PE-backed E&P startups. Indeed, many of the management teams who were the beneficiaries of recent M&A activity are putting their proven skills to work again on the second, third, or even fourth incarnation of their operations. Continued consolidation plus the influx of private equity and startups looking to scale up and then divest are likely to sustain deal flow for years to come, making A&D digital skillsets a strategic advantage for those who can leverage data, software, and automation to streamline the process from end to end.
Let’s take a look at how The Pak harnesses cloud-native technology and business automation to supercharge your team—delivering smarter decisions, faster outcomes, and unbeatable performance through a powerful, easy-to-use A&D platform.
Potential asset buyers must look beyond the headline acreage and production of a deal by digging into the history of the leases and wells up for sale. Understanding past performance is essential to estimating future returns, so careful due diligence must be undertaken to analyze production decline, well work history, lease operating expenses (LOE), any remaining drilling inventory on the property, and the local supply chain economics.
In most cases, boxes and boxes of well and land files from the seller hold back rapid asset assessment for the buyer. These files must be combed through for insights (or the digital equivalent, thumb drives, and external hard drives). Adding complexity, files are structured according to the seller's unique preferences, making analysis time-consuming and risk-prone.
PakEnergy's Exchange and DocVue solutions aid in the early stages of asset screening by providing the means to rapidly digitize any paper documents, classify them according to an oil and gas document taxonomy and load them into the cloud for rapid filtering and search. Our users can also create virtual data rooms to eliminate inefficient processes in deal execution by facilitating data and document sharing between seller and buyer.
Pak Land further streamlines acquisition processes with automated dynamic interest calculations, accelerating due diligence. Pak Accounting and Intelligence users can also perform critical analysis with energy-specific BI capabilities. This includes the industry's most powerful lease operating statement (LOS), which can be used to filter wells on various key performance indicators (KPIs). This reliable data and analysis can be brought to the negotiation table to refine the sales price.
Once a purchase and sales agreement (PSA) and transition services agreement (TSA) have been signed, the buyer and seller must work quickly on multiple fronts to integrate the acquired assets. During the transition period, the seller provides the buyer access to the systems and data required to continue operating wells and other facilities, but at a steep charge. With TSA fees that can quickly mount into the millions or even hundreds of millions, swift acquisition integration is imperative.
Staggering TSA costs have become business as usual for many E&Ps, who struggle to integrate a seller's data and systems with their own, often requiring a year or longer to onboard accounting, land, and production data. Worse, they often create a backlog of acquisition data that never seems to get onboarded. Yet most buyers acquire assets because they are accretive to business and growth objectives, so delays in acquisition integration often defeat the purpose of the deal.
Meanwhile, critical obligations to interest owners are in jeopardy, such as missing an expiration or lease provision. Integration delays also inject risk in meeting production targets, processing JIBs (Joint Interest Billing), managing accounts payable, and the timely filing of regulatory reports.
Understanding the important role acquisitions play in our industry, PakEnergy makes asset data onboarding intuitive and seamless across our leading accounting, land, and production software suites. Whether your team relies on our powerful importing tools that validate every data point before loading or you work in concert with PakEnergy's professional services to outsource data integration, we recommend a phased approach. This starts with leases and royalty owners to ensure obligations are met and avoid leasehold risks. As a result, PakEnergy accelerates time to synergy, reducing TSA costs and bringing assets under management sooner for better oversight and optimization.
Many oil and gas companies that grow through A&D take a long view of the assets they acquire and divest rather than flipping them. This means holding assets often for years until the economics are right. To maximize the return on these investments, operators must contain lease operating expenses (LOE) while also enhancing marketability by cost-efficiently operating legacy wells, optimizing production with workovers and Refracs, and continually developing leases with new wells.
PakEnergy's accounting, land, and production solutions help operators of any size run leaner and efficiently close the month faster. Operators leverage powerful business automation to monitor leases by exception with an eCalendar for obligations and expirations. They leverage Pak Production to manage wells and field spending across the entire asset lifecycle, from drilling and completions through flowback, operations, and end of well. Combined with cutting-edge SCADA and alarms management, Pak Production empowers the field and back office to capture, validate, and allocate daily production volumes, monitor artificial lift KPIs, and invest in well work at the right times to maximize ROI.
In addition to providing industry-leading financials and revenue distribution for cost-efficient back office operations, Pak Accounting's ability to track multiple acquisitions separately or roll up for a complete financial view enables unmatched ROI analysis for both operated and non-operated wells. Plus, Pak Exchange automates workflows so operators can do more with a lean team, including distributing owner reports and accelerating AP workflows.
When the time is right to divest, valuing assets requires the seller to provide buyers with a price that best represents fair market value discounted by various factors, including estimates of ultimate recovery and LOE. For E&Ps that do this well, the results of this valuation should be defensible and transparent for buyers to understand the value they will receive. Supporting this crucial step is Pak Production, which provides a complete well history and production database suitable for generating reserves-level reporting. Further improving the marketability of assets, the system provides buyers with pre-built LOS reports to bolster deal value and support the discount rate the seller is offering.
Buyers will also want to mine historical asset data for their own due diligence, requiring large numbers of well and land files to be shared. With DocVue, sellers can rapidly create a secure, energy-specific virtual data room to market their assets and speed up deal closure.
Want to learn more about powering A&D growth with PakEnergy? Read this case study to learn how Permian operator Clear Fork, Inc. runs lean operations with The Pak, maximizes asset value, and divests with confidence.