US Shale Plays Attract Investors in $100 Billion M&A Surge

M&A activity in the US oil and gas industry is close to matching and possibly surpassing last year’s record deal level.

The latest information on oil and gas mergers and acquisitions comes from Rystad Energy, a.s quote by Reuters, which said dealmaking had reached $100 billion and $46 billion more to go. Last year’s total M&A reached an all-time high of $155 billion.

The numbers support the view that the US oil and gas space remains a very busy one in terms of consolidation, after earlier this year Enverus PREDICTED the industry was in for another strong year in closing deals. The second quarter saw $30.2 billion worth of deals, noting that consolidation activity was already spreading to other shale areas beyond the Permian.

Rystad Energy made the same observation in its new report. The Permian has been the main focus of dealmakers, but now they are becoming interested in other assets – those in places like the Eagle Ford and the Uinta Basin, according to Enverus. Now, Rystad also says more deals are happening outside the Permian, with the star shale play the location of 46 percent of all deals so far this year, up from 92 percent of last year’s deals in the space.

Bakken shale has seen a sizeable increase in deals this year, accounting for 12 percent of the total, Rystad Energy said, while last year’s deals were virtually non-existent. Utah’s Uinta Basin is also in on the action. In fact, it was the site of a major $2 billion deal in which SM Energy acquired a local driller, XCL Resources.

“We would love to add this type of asset in the Permian, but getting something of this size close to that price is very difficult right now,” SM Energy’s chief financial officer said this week, as quoted by Reuters.

Indeed, assets for sale in the Permian are disappearing fast and prices are higher than in other basins, with the Permian being the best performer in the shale area. So potential buyers are turning elsewhere to expand their footprint in an increasingly competitive space. In addition to Bakken shale, Eagle Ford and Marcellus shale also accounted for sizable portions of total transactions. The share of the Eagle Ford was 13% and that of the Marcellus shale was 14%.

It looks like the pace of deal closing will remain brisk for the remainder of the year, with larger deals still possible. Since the start of the year, there have been 12 deals, each of $1 billion or more, according to Enverus’ August update. That suggests the total for the year could top last year’s 19 deals of a billion dollars or more.

As for the locations, a separate new report by Rystad Energy suggested that they may be decided on factors other than resource availability and price, namely emissions. The consultancy said in its report that despite the push for an energy transition, oil and gas were likely to remain the dominant energy source. However, it also said the industry would come under increasing pressure to decarbonise, prioritizing its emissions footprint.

“As investors and governments intensify their focus on carbon reduction targets, identifying pools that can help reduce the overall impact on emissions is becoming increasingly important,” Rystad said, adding that he coined a new term for such of pools: premium energy pools. In the US, the premium energy basin is the deep-water Gulf of Mexico, Rystad said, adding that the basin also has significant carbon storage potential due to the number of abandoned oil wells.

By Irina Slav for Oilprice.com

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