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Low oil prices spur interest in California acquisitions

A Houston company is shopping for Kern County oil projects, underscoring what some see as growing potential for acquisitions because of the low prices wreaking havoc across the industry.

Publicly traded Petro River Oil Corp. says it recently recapitalized with $25 million in cash it hopes to spend specifically in Kern, parts of the United Kingdom and possibly other oil-producing regions.

Petro River’s president, Stephen R. Brunner, said in a November news release announcing his appointment that the company’s future lay in acquisitions.

“These have been challenging times for small domestic producers, but depressed commodity prices have also created opportunities to take advantage of if you have the staying power and know where to look,” he said. “My goal is to re-position Petro River to best exploit these opportunities and allow us to add meaningful reserves that create shareholder value.”

Whether local oil producers take up the company on any purchase offers will likely depend on their individual financial positions as well as their feelings about how soon commodity prices will rebound. Those with substantial debt to service and minimal cash may be more willing to sell in the near term.

It’s anyone’s guess how long oil’s global downturn — and by extension, local oil companies’ financial troubles — will persist. Despite predictions that geopolitical unrest will raise prices, the cost of a barrel of oil remains about 60 percent below the $100 level it maintained until a supply-demand imbalance hit in June 2013.

Bakersfield-area oil producer Chad Hathaway said he hasn’t seen much local acquisition activity lately as oil producers hold out for as long as possible before selling in hopes of increasing petroleum prices, and, with them, purchase offer amounts.

But that doesn’t stop outsiders from trying to get in on what he considers “very attractive” local properties known for having low decline rates and long production lives.

“It doesn’t surprise me that people are looking to buy locally,” he said. “I think that’s smart.”

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Ken Hunter, head of another local oil producer, Vaquero Energy, said by email his company regularly evaluates potential acquisitions. “Having said that, we haven’t seen any worthy opportunities in California in the past year,” he wrote.

“I do think there will be California properties on the market starting soon (second quarter?) but their quality will be a question,” his message continued, adding there are rumors potentially large local projects will be offered for sale within the year.

Much of the recent national interest in oil project acquisitions, albeit modest, is coming not from producers themselves but hedge funds or companies backed by such entities, said Steve Layton, president of Bakersfield’s E&B Natural Resources.

That could be significant locally because of the California oil industry’s reputation as facing a difficult regulatory environment, he said. Although the Golden State boasts enviable assets with prolific and dependable oil reservoirs, more highly publicized fields in petroleum-producing states such as Colorado, Texas and North Dakota generally command more attention.

California’s Monterey Shale petroleum formation was seen a few years ago as a hot place to invest because of its sheer size, Layton said, but “when that didn’t pan out, California lost the sizzle that it had.”

He added that while local oil producers are confident of their ability to find oil relatively cheaply and cope with changing state, regional and local regulations, none of these companies seem to have the deep pockets necessary for significant acquisitions.

A big local operator, Bakersfield-based Aera Energy LLC, said in an email it is looking for potential acquisitions that “fit our portfolio and where the valuations are right.”

“That said, it’s a challenging market for potential buyers and sellers across the industry to agree on a value. Sellers recall higher oil prices and value, while buyers are seeing value relative to lower oil prices,” it said.

Another operator big in Kern, Los Angeles-based oil producer California Resources Corp., said it is keeping an eye out for “high-quality” assets in the state to complement its existing operations. But it emphasized it is in no rush to buy.

“CRC is patient in this process, and willing to wait until expectations of sellers align with current market conditions and any potential acquisitions are also competitive versus our current investment opportunities,” the company said by email.

This article was written by John Cox from The Bakersfield Californian and was legally licensed through the NewsCred publisher network.