Citadel reportedly seeking US shale assets

US-based hedge fund and commodity trader Citadel has reportedly held talks to buy US shale oil production assets. Citing five sources familiar with the matter, Reuters reported last week that this comes as Citadel considers a further expansion into physical asset ownership.

According to four of the sources, Citadel was among the bidders for Eagle Ford-focused WildFire Energy, which is currently in the process of being acquired by Magnolia Oil & Gas (NYSE: MGY) for around $4.06bn. The sources added that the bid for WildFire was one of a handful of engagements that Citadel has had in recent weeks with ⁠private equity firms that own oil and gas producers about buying oil-weighted assets.

The report that Citadel is seeking tight oil assets comes as elevated crude prices continue to drive up interest in buying oil and gas acreage. Indeed, West Texas Intermediate (WTI) prices rose above $100 per barrel again this week for the first time since May and were trading above $102 per barrel on September 10. This has boosted earnings for producers, while also raising their attractiveness as acquisition targets.

Reuters noted that it was “uncommon” for hedge funds and trading houses that have traditionally traded commodities on exchanges to expand their ownership of physical assets, but that this has been happening, with such companies often seeking to complement their trading businesses. Indeed, the news service continued, owning physical production assets can serve as a “natural hedge” for financial firms that ‌trade ⁠commodities through futures and derivatives. This is because physical barrels can gain value under the same market conditions that can result in losses on their paper trading positions.

WildFire would have been an attractive acquisition target for Citadel because as well as producing assets, it would have come with an existing management team to continue operating this production, according to the report. Reuters went on to note that this would have been in line with Citadel’s entry into the shale gas industry last year when it acquired Paloma Natural Gas from EnCap Investments. That company was renamed to Apex Natural Gas and it then proceeded to acquire further assets.

Meanwhile, other major commodity traders have also been expanding into oil and gas production. According to a separate Reuters report from late August that cited sources familiar with the matter, Gunvor is in talks to buy gas assets in the Haynesville shale for $1.2-1.5bn from private energy firm Silver Hill Energy Partners. Meanwhile, Vitol agreed in July to sell its VTX Energy Partners shale venture to Verde Operating for an undisclosed sum.