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Wood Mackenzie sees private equity pushing more Gulf of Mexico M&A

Opportunistic companies such as Talos Energy Inc. could acquire more assets in the Gulf of Mexico thanks to the desire of private equity firms to get out of the sector, Wood Mackenzie said Dec. 11.

In what it described as a "transformative" move, Talos announced Dec. 10 that it had acquired the Gulf assets of Venari Resources LLC, ILX Holdings, ILX Holdings II and ILX III Holdings LLC, as well as subsidiaries of the Castex Energy 2014 LLC and Castex Energy 2016 entities, for approximately $640 million. All of the firms are controlled by private equity. Talos, while publicly traded, has a major shareholder in Riverstone Holdings LLC and is owned by Apollo Global Management Inc., another private equity firm.

While Apollo is willing to spend a significant sum to increase Talos' presence in the Gulf, other private equity firms, including Riverstone, see the deal as an opportunity to recoup capital from investments made earlier in the decade.

"The transaction allows private equity companies, Riverstone holdings (ILX and Castex) and Warburg Pincus (Venari), to monetize a portion of funds formed in 2010 and 2014, respectively," Wood Mackenzie Gulf of Mexico Upstream team member Mfon Usoro said. "We expect future M&A activity in the US [Gulf of Mexico] to be driven by other mature private equity funds needing to exit."

For Talos, the deal presents the chance to become one of the 10 largest oil and gas producers, with combined production of 72,000 boe/d based on third-quarter results. Wood Mackenzie said the agreements not only increase Talos' production base by approximately 35% but broaden that base as well.

"The deal allows Talos to strengthen its position in the US Gulf of Mexico and diversify its portfolio beyond its core Green Canyon and Mississippi Canyon area," Usoro said. Wood Mackenzie estimates the acquired acreage has some of the most attractive economics in the entire Gulf, with the majority of the assets having a breakeven price of less than $15 per barrel of crude oil.