(Bloomberg) — A decision by Whiting Petroleum Corp., the largest producer in North Dakota’s Bakken shale basin, to put itself up for sale looks to be the first tremor in a potential wave of consolidation as $50-a-barrel prices undercut companies with heavy debt and high costs.
For the first time since wildcatters such as Harold Hamm of Continental Resources Inc. began extracting significant amounts of oil from shale formations, acquisition prospects from Texas to the Great Plains are looking less expensive.
Buyers are ultimately after reserves, the amount of oil a company has in the ground based on its drilling acreage. The value of about 75 shale-focused U.S. producers based on their reserves fell by a median of 25 percent by the end of 2014 compared to 2013, according to data compiled by Bloomberg. That’s opening up new opportunities for bigger companies with a better handle on their debt, said William Arnold, a former executive at Royal Dutch Shell Plc.
“In this market, there are whales and there are fishes, and the whales are well armed,” said Arnold, who also worked as an energy-industry banker and now teaches at Rice University in Houston. “There are some very vulnerable little fishes out there trying to survive any way they can.”
Smaller producers with significant debt that depend on higher prices to make money are the most likely early targets for buyers such as Exxon Mobil Corp. or Chevron Corp., companies that have bided their time for years as the value of some shale fields soared to $38,000 an acre from $450 just a few years earlier.
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