Asian Buyers Long-Term Strategy in U.S. Shale Oil and Gas M&A: Overpaying for Mature Assets and Future-Proofing AI Data Centers

In the realm of U.S.-based shale oil and gas mergers and acquisitions (M&A), a recent trend has emerged where Asian buyers are seen as overpaying by some industry observers. This sentiment was echoed by Jeet Benipal, a managing director at Tokyo-based Mizuho Financial Group's U.S. unit Greenhill & Co., who spoke at the Hart Energy's Energy Capital Conference in Houston. According to Benipal, Asian buyers have a lower cost of capital and lower return thresholds, which allows them to acquire U.S. producing properties for the long term. Their model is to acquire assets and hold them for 20 to 25 years, unlike most U.S. strategics who are more focused on building and flipping assets or acquiring them for a limited period of 10 to 15 years. The math that Asian buyers use to determine the value of a property is different from that of U.S.-based E&P buyers. U.S.-based E&P buyers have an advantage when bidding for properties with more upside, such as less PDP (production decline profile) and more PUDs (production units) and other future-well inventory. However, Asian buyers tend to focus more on assets and companies that have mature, PDP-heavy, base production, with their main focus being on flow assurance and maintaining production for the foreseeable future. U.S. operators can differentiate themselves when bidding due to their knowledge base and ability to explore further within the existing shale plays, as seen in EOG Resources' plan to buy Ohio Utica oil producer Encino Energy for $5.6 billion. While U.S. strategics will still have opportunities, they tend to focus more on assets that have a lot more upside. In the early 2010s, foreign buyers of U.S. shale interests took non-operated positions to get a look at tight-rock wells' results and costs. However, this time around, foreign buyers are coming in with the intent to acquire a majority stake or 100% of the company, with control over their assets and destiny being a priority. A lot of U.S. gas-producing property is currently on the market, with potential U.S.-based and foreign buyers lined up to strike the right bid/ask. Benipal estimates that at least $10 billion of transactions are at or near the closing table in the next six to 12 months, with a new impetus being driven by U.S. power generation demand for AI data centers. The U.S.'s desire to be the global leader in AI capabilities is driving the need for compute power, which requires 24/7 power generation, and natural gas is the primary source of fuel for those power-generation assets.