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Talos Eyes Enven as Potential Acquisition Target

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ss379616800-Mergers & Acquisitions

Gulf of Mexico operator Talos Energy is reportedly in “advanced” talks to buy private equity-backed rival Enven Energy in a move that could dramatically increase Talos’ E&P asset base as it attempts to diversify its business strategy.

Reuters reported over the weekend, citing unnamed sources, that Talos and Enven are discussing a potential deal for the private player, priced at around $1 billion. Talos would likely primarily use its own stock to fund the purchase, according to Reuters. Energy Intelligence was unable to confirm the rumored talks or any details around the potential deal.

If such a deal were to come to fruition, it would be one of the largest M&A deals in the Gulf so far this decade and the largest corporate combination in the region since Kosmos Energy bought Deep Gulf Energy for more than $1.2 billion in 2018.

Strategic Move

A merger between Talos and Enven would make strategic sense for both companies.

Enven was initially formed in 2014 by Bain Capital and incorporated in 2015; Adage Capital Partners and EIG Global Energy Partners are also equity owners of Enven, according to a 2018 prospectus filed with the US Securities and Exchange Commission.

The prospectus was filed ahead of a planned $300 million initial public offering (IPO) by Enven, although the company reportedly pulled the IPO filing in February 2020.

Enven has been shopping itself as an acquisition target ever since, as the typical five- to seven-year window for private equity investments has nearly closed and the sponsors are doubtless eager for an exit.

Enven’s assets include six operated production platforms and around 44 deepwater leases on their primary terms. Production is projected to average 23,000-26,000 barrels of oil equivalent per day in 2022, according to a March presentation posted on Enven’s website.

The platforms together have hundreds of thousands of bbl of production capacity and are each highly underutilized, presenting potentially dozens of opportunities for near-field infrastructure-led drilling and short-cycle production — Talos’ bread and butter.

Talos as 'Natural Consolidator'

Talos’ unique position and strategy could make it a logical acquirer of Enven.

The company has often cast itself as a “natural consolidator” in the Gulf and has long leveraged M&A as part of its growth strategy.

Talos was formed in 2012 — also by a private equity group — and has built its portfolio through a dozen or so acquisitions over the past decade. That includes the $2.5 billion reverse merger with Stone Energy that enabled Talos to go public in 2018.

It has generally targeted “distressed” assets that don’t fit in the portfolios of their current owners but from which Talos believes it can squeeze more value. It has a vast library of proprietary seismic data that the company says gives it a distinct advantage in evaluating potential acquisitions.

Talos CEO Tim Duncan told Energy Intelligence in an interview last year that one of the company’s key goals over the next several years is to build “more scale and more diversity” into its portfolio.

“We think someone needs to be the second owner on a lot of these assets that are going to be on the marketplace. And we think we’re the right owner,” Duncan said. “We employ the right techniques, we’re a full-lifecycle owner of assets. We think we can revitalize, we think we can maintain low if not improving emissions on these assets. And so we want to grow that side of our business.”

Talos currently operates five production platforms, each of which was acquired from a previous operator. It expects to average production of 60,000-64,000 boe/d in 2022.

Dry Spell for Gulf M&A

If a deal between Enven and Talos were commenced, it would break a relative dry spell for M&A activity in the US, says Andrew Dittmar, director at consultancy Enverus.

“Despite high commodity prices, Gulf of Mexico M&A has been extremely subdued this year with only $100 million transacted year-to-date and is currently on pace to finish with the lowest M&A value total in 20 years,” Dittmar told Energy Intelligence in an email.

“That said, Gulf of Mexico M&A is usually dependent on one or two bigger deals per year and so that could change in an instant with a large transaction.”

He said the Gulf in particular has been challenged by “a limited buyer pool for producing assets.”

Top M&A Deals in US Gulf Since 2015
DateBuyersSellersDeal TypeValue ($MM)
Nov'17Talos EnergyStone EnergyCorporate$2,535 
Sep'16AnadarkoFreeport-McMoRanProperty$2,000 
Apr'19Murphy OilLLOG BluewaterProperty$1,375 
Aug'18Kosmos EnergyDeep Gulf EnergyCorporate$1,225 
Jun'21QuarterNorthFieldwood EnergyProperty$1,030 
Jun'18Cox OilEnergy XXI Gulf CoastCorporate$1,006 
May'19EquinorShellProperty$965 
Oct'18Murphy OilPetrobrasJV$900 
Feb'18Fieldwood EnergyNoble EnergyProperty$710 
Dec'19Talos EnergyILX; Castex; VenariProperty$640 

Topics:
M&A, Corporate Strategy , Independent E&Ps, Deepwater, Offshore Oil and Gas
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