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In the world of acquisitions and divestitures (A&D), navigating through a sea of opportunities requires a strategic approach to ensure that the chosen path aligns with corporate visions and objectives. Each company or individual might have their unique workflow, but incorporating certain key strategies can significantly enhance the efficiency and effectiveness of the process. Here are five tips offered by XI to maximize your time and effort while exploring A&D opportunities.
1. High-level scoping criteria:
Initiating the A&D journey demands a high-level overview to filter out opportunities that don’t align with your corporate vision. Criteria like production qualities, undeveloped land, non-core assets, and financial distress indicators from evaluations of financials or liability values are pivotal in this phase. This initial screening sets the stage for a focused exploration. Clearly outlining the criteria by which you would like to search for your target assets is critical to finding the right opportunity.
Figure 1: Example of some high-level scoping criteria. Source: AssetBook.
2. Production Profile and Land Analysis
Following the high-level investigation, delving deeper into the opportunity’s production profile and available land helps narrow down potential choices. Details regarding production statistics, well declines/reserves, operational nuances (such as operatorship, working interest percents, types of production, etc.), land expiry schedules, recent land sale prices, and other upside potential analysis play a crucial role in this stage. It is also important to look at area trends, such as land sale postings, and large shifts in ownership and drilling activity, to see if you’re going into a highly competitive area or one with a drastically changing landscape.
Figure 2: Example of an opportunitys production profile. Source: AssetBook.
Figure 3: Total bonuses paid by field. Source: AssetBook Graphs Module.
- Evaluating Liabilities
Transitioning into a more serious evaluation phase involves assessing liabilities like LLR (Licensee Liability Rating), LCM (Licensee Life-Cycle Management), and ARO (Asset Retirement Obligation). Calculating post-transaction LLR for both the buyer and seller provides a clearer picture of your regulatory requirements and uncovers possible impacts with governmental bodies. Being able to estimate the impact of the deal such as changes to your position within your peer group or determining a possible inactive well ratio allows you to filter out those opportunities which may not be worth investing more time into persuing. Analyzing non-operator liabilities, variances using different rates, and scenario-based cost models for ARO further enhances decision-making and reduces the risk going into the deal.
Figure 4: Example of potential deal in terms of liabilities and risk analysis. Source: AssetBook LCA Module.
Figure 5: Overview of companies liability impacts. Source: AssetBook LCA module.
4. Emissions Analysis
Considering the increasing focus on environmental sustainability, evaluating volumes and greenhouse gas emissions becomes imperative. Factors such as fuel flare vent, intensity effects, gas conversion rates, and regulatory commitments need detailed scrutiny to align with environmental objectives. A post transaction Emissions summary can easily be created for both the buyer and the seller.
Figure 6: Post-transaction emissions summary. Source: AssetBook Emmissions Module.
5. Production Chain Evaluation
Lastly, scrutinizing the entire production chain completes the comprehensive assessment process. This involves mapping out the complete chain of production to market, analyzing efficiencies, identifying potential bottlenecks, and exploring opportunities for optimization. Being able to visually “follow the molecules” provides a deeper understanding of the business case for each opportunity.
Figure 7: “Follow the molecule” wells to facility map. Source: AssetBook Production Chain Module.
In conclusion, a methodical approach to A&D opportunities that integrates these five strategies will quickly streamline the evaluation process. While every workflow may have its unique nuances, incorporating these first five steps offers a robust framework for maximizing the efficiency and effectiveness of the assessment phase in M&A endeavors.
For more tips and to learn about how XI’s AssetSuite software can help with your high-level analysis of potential mergers, acquisitions, and opportunities, including examining potential liabilities and emissions, click here.