US oil M&A is poised to surpass last year’s size

The M&A frenzy in the US oil sector is still gaining momentum and could lead to even more deals than last year. The industry is once again going through a complete change.

Last year, U.S. oil and gas companies announced several massive deals — regularly called megadeals in the media — including Exxon’s $60 billion takeover of Pioneer Natural Resources and the merger Chevron with Hess, worth $53 billion, currently held by Exxon.

Indeed, the last quarter of last year saw the highest value of M&A deals ever recorded, totaling $144 billion. For the full year, the size of the US M&A market reached $234 billion, in stark contrast to the rest of the world, where M&A activity has been in decline since 2014.

After a spectacular 2023, one might think it’s time to stick around to navigate the new environment more successfully, but it seems that oil and gas companies are in a real race to get bigger, sooner than later.

Enverus said in its latest M&A activity report that $30.2 billion worth of deals were announced in the second quarter of this year, noting that consolidation activity is already spreading to other shale areas, other than the Permian. The Permian has been the main focus of dealmakers, but now they are becoming interested in other assets, in places like the Eagle Ford and the Uinta Basin.

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In fact, the majority of transactions in the second quarter were for assets outside the Permian—deals for the Permian and the adjacent Midland Basin accounted for just 7 percent of all assets that changed hands in the second quarter. Over the past two quarters, the Permian and Midland Basin accounted for half of the assets that changed ownership.

This suggests two things: first, that asset acquisition opportunities in the Permian and Midland are drying up, which was to be expected, indeed; and secondly, the shale patch is not just about the Permian, and there are plenty of growth opportunities in other basins as well.

Since the start of the year, there have been 12 deals worth $1 billion or more, Enverus also reported, suggesting that the total for the year could surpass last year’s 19 deals of $1 billion or more. These included ConocoPhillips’ tie-up with Marathon Oil, which was priced at $22.5 billion, and Crescent Energy’s acquisition of SilverBow Resources for $2.1 billion.

The third quarter of the year also got off to a strong start with Devon Energy’s $5 billion acquisition of Grayson Mills — a venture in the Bakken play — and the $1.1 billion acquisition of Point Energy Partners by Vital Energy and Northern Oil & Gas.

US oil and gas is consolidating at a rapid pace. Meanwhile, in the rest of the world, M&A activity is so slow that it feels like the US is the only place where deals are happening. Global Data reported last month that global M&A activity in oil and gas was $86 billion in the second quarter of the year, down 20 percent from a year earlier.

There were 17 so-called mega deals during the three-month period, of which, based on Enverus data, 13 were completed in the United States. It’s the right place for oil and gas M&A – because companies have the money to buy, the motivation to sell and the upside potential that everyone loves when it comes to M&A. Also, despite increasing regulatory pressure on the industry, US oil and gas is still better than elsewhere, particularly in Europe.

As consolidation activity continues to be strong, it’s natural to wonder where it would all end. The answer is wherever shareholders say it will end. Regulators are also scrutinizing mergers and acquisitions in the shale patch over antitrust concerns raised by Democratic lawmakers.

Until there is room for consolidation, however, the process is likely to continue as shale producers seek to increase their acreage to ensure long-term production. After all, the most marked difference between a shale well and a conventional one is that the former can start producing in a few months, but it will run out even faster.

As the sector continues to consolidate, another question arises: How will production change as the number of players in the shale field shrinks? In short, it will change according to strategic business plans. There will be no more willful drilling from hundreds of small independents who have debts to pay and cannot afford to respond to international prices. US shale production will be under tighter control in the future.

This, in turn, means that US shale will have an even more significant effect on those international prices, similar to OPEC. In this sense, the US oil and gas consolidation is actually a global consolidation with global implications for the industry.

By Irina Slav for Oilprice.com

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