Investing in the energy space is a lot like investing in real estate. Location really matters. That's why oil and gas companies spent $16.4 billion last quarter to acquire oil and gas properties in the best locations. Of those funds $5.4 billion was spent directly on U.S. shale plays as energy companies continue to bulk up on the best spots to take advantage of the U.S. energy boom.
The key to these energy deals
A third of the value of those shale deals were made in North Dakota's Bakken Shale. Total deal volume in the Bakken shale was $1.8 billion and was spread across three major deals. That was just $100 million more than Texas' Eagle Ford Shale, which saw seven transactions last quarter. With virtually all of the good land already leased up, the only way to expand is to acquire acreage from others.
The biggest deal on the quarter was Oasis Petroleum's (NYSE:OAS) $1.5 billion deal that grew its position in the Bakken significantly. The deal boosted its net acreage by 50%, production by 28% and future drilling locations by 42%. The key to the deal was the location, which was adjacent to much of Oasis' acreage, which can be seen in the map below.
For Oasis, its deal in the Bakken was really transformative. However, most Bakken deals these days are merely bolt-on transactions where producers are looking to pick up a little more land around a core position. This was exactly what Whiting Petroleum (NYSE:WLL) was after when it spent $260 million to add acreage to its already vast land position.
Here again the visual of a map really puts the deal into perspective. As the slide below shows, the acreage Whiting Petroleum picked up this past quarter was in a great location as it was right between two of its core focus areas.
Having contagious acreage builds valuable scale, enabling a producer like Whiting Petroleum to leverage infrastructure and knowledge to keep costs low and improve returns.
Not everyone is a winner
Not all companies are in the position to be net buyers of shale assets. For example, global energy giant Royal Dutch Shell (NYSE:RDS-A) realized last quarter that its positions in the Eagle Ford Shale and Mississippian Lime just wouldn't produce the returns it needs in the future. Because of this, Shell is putting its entire acreage position in both plays up for sale. Shell could have continued to invest in both plays, but because it didn't have a prime location it couldn't get the returns that a buyer might be able to get out of either position.
What is becoming pretty clear is that America's energy boom is creating winners and losers. Those companies in the best spots are producing phenomenal returns. At the same time, other drillers have no choice but to sell because the returns just aren't there. That's why investors need to make sure they are invested in the companies that actually will profit from America's energy boom.
A good sign to look for are companies like Oasis or Whiting, which are buying up acreage around core positions. Those positions are usually in very good spots in the play and can be even more valuable to the buyer than the seller because of the synergies that can be achieved by combining the acquired acres into a really nice scale position. It's a good sign that profits will follow.