Has the Utica cost of entry been cut by half?

 

Asset values in the Lower 48 are down, on average, by an additional 11% (remaining present value) since late 2014 which is having a knock-on effect on the M&A market. 

On one hand, sellers do not seem fully willing to accept the idea that lower valuations have reset buyer expectations regarding  the cost of entry into a play.

Buyers, however, are eager to execute deals and believe that lower valuations could present a timely opportunity to enter unconventional plays at historically low costs.

As one of the most heavily marketed plays so far this year, the Utica provides an excellent case study for illustrating the dynamics between past deal considerations, 2015 asset valuations and how they could influence entry costs and current buyer behaviour.

Utica Permits by Operator

Analysis of our extensive M&A database indicates that, on a per acre basis, the high end of Utica asset valuations are down 50% and that core Utica packages are now worth, at most, US$10,000 per acre – down from a prior peak entry cost of US$20,00.

Utica Deal Considerations

Current valuations show a wider range across sub-plays too, where prior deals were somewhat indiscriminate. In the historical period we studied, buyers underpaid for core acreage and overpaid for fringe positions.

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Has the Utica cost of entry been cut by half? [Subscription required] 

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