US Shale Industry Consolidation – Key Webinar Takeaways

US Shale Industry Consolidation – Key Webinar Takeaways

The US shale industry is consolidating. It’s happening now. On Monday, September 28th, Devon and WPX Energy announced terms that create a dominant player in the Delaware Basin. These deals will continue, perhaps accelerating as leaders strive for survival, medium-term success or merely profitable exit. Within the next two years, BTD expects the number of companies in the space to fall by over half. Oil-price volatility, increasing uncertainty in the global economy, Covid-related disruptions and overly-leveraged shale firms will all fuel this activity.

BTD recently sat down with two experts in the oil & gas industry, John Applegath of Applegath Energy and Matt Palmer, formerly with Chevron, to discuss this oncoming consolidation. Both panelists emphasized one central idea: industry executives must prepare now or put their firms at grave risk. They must prepare before entering into the coming M&A melee. And this preparation should include defining their firms’ optimal positioning, winning culture and clear sources of value.

Up front, executives must decide whether they are the new predators or likely prey. A clear and objective assessment will set the short-term agenda. By either misunderstanding their firm’s chances or trying to “have it both ways” their chances of success fall dramatically.

Predators must decide how their acquisition plan will create value, with detail and specifics:

  • What is my company’s niche over the next 18 to 30 months? How do we make money?
  • What will acquired firms contribute to that niche – portfolio balance, geographic expansion, specific skills and experience, field technology?
  • How will we “calculate” the value of the specific contributions of an acquired company? What are our assumptions about energy prices? Economic activity? Do not make these up as you go. Agree beforehand.

Potential targets, the prey, must position their firms to reap the maximum value for shareholders and employees:

  • Where is my company’s greatest value? What specific assets, technologies, people and teams underpin that value?
  • How would a savvy acquirer leverage that value?
  • How can we enhance that value and make it “visible” to acquiring firms in the very short term?
  • Above and beyond my company’s assets and reserves, what other intangibles do we want to showcase for potential predators? Does my company have unique drilling or completion technology? Do we have a reputation for innovation or efficient operations?
  • How will we negotiate to ensure that all sources of value are rewarded?

Culture is the worm that can either spoil the apple or nourish the soil. Culture underpins your operational success. Matt noted,

“Culture matters and you need to pay deliberate attention to it if you want to extract maximum value from a transaction.”

Every deal will influence the culture of both firms. Your actions will determine if that influence is planned and supportive, or haphazard and destructive. Predator firms must take a systematic approach. Most acquirers give lip service to cultural challenges. Successful acquirers take culture seriously. This includes cultural aspects to reinforce and those to avoid. Matt continued,

“Assets come and go, people come and go. What differentiates one company from the other is culture.”

John Applegath emphasized the detailed challenges of cultural integration. For him, culture is found in the specifics of how people accomplish their day-to-day tasks. He gave a good example,

“In most cases, you need to bring the piece you are acquiring into your culture. We bought a field, a part of a company. How they delegated was totally different. We decided we had figured this out, how we needed to work; these are the skillsets our top leaders need to have.”

Everyone today gives lip service to cultural integration. Some say a lot, do little, and hope for the best. At the other extreme, some engage in huge standalone change-management programs. As our panelists highlight, either extreme is a route to failure. Culture is integral to how the work gets done. It is part of integration, not an “add on.” In particular, you should identify “hot spots” – behaviors and routines that would erode deal value. Develop pragmatic approaches, in the context of the overall plan, to address them.

Next, well-prepared executives will craft a robust integration plan before closing the deal. Yes, things will change. When they do, that preparation will support rapid, smart reactions. The more prepared, the more adaptable in “the fog of war.” Preparatory planning involves organizing integration into three buckets:

  1. BAU & Essentials: this includes safety, regulatory and compliance as well as areas necessary for running the business day to day. These are important, but not necessary to have at “world class” levels.
  2. Value Creation: the small number of areas that will determine whether or not the acquisition will meet its value targets. These must perform at an extremely high level.
  3. Not Needed Now: in some ways the most critical category. Many areas do not need to be integrated in the first months or even year. By explicitly identifying these, you will free up time, funds and “management attention” to focus on what matters. But, beware. Many managers and teams will go on autopilot to integrate in these areas. You may even be tempted. The resulting loss of focus, managerial time and resources can doom the acquisition.

Setting boundaries is vital. You must ensure high, consistent standards in areas including HSE, reporting, and debt management. These are non-negotiable.

Finally, there are the people. In predator and prey, there are typically a small number of individuals who are the keys to unlocking value and speeding integration. You must know who these people are! Particularly those within “the prey.” If one leaves in frustration, your deal rationale could evaporate.

Give key employees from the target key roles and responsibilities and your support. You will ruffle feathers of your current employees. Be clear, honest, and persistent.

As you craft this integration plan, maintain laser focus on the specific synergies. Be detailed. Assign the right people, give them the right tools, resources and authority. They will be the ones locking-in value and reacting to new opportunities. You cannot be everywhere. Communication must be timely, accurate and useful.


BTD knows that US shale consolidation is a matter of when, not if. While the timing and size of deals is unpredictable, you must act now if you hope to profit. Your actions must be focused and decisive, there are key areas you must address. Only then can you move forward confidently. BTD’s experienced team has worked with firms across industries and geographies to develop and execute such plans. Successfully.

In three years, the US shale industry will look very different. Through effective leadership, diligent preparation, and a willingness to ask difficult questions, companies can thrive in this new landscape, regardless of whether predator or prey. BTD can be your strong partner in charting a course to success.