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Last year, U.S. oil and gas companies announced several massive deals.
Enverus said in its latest report on M&A activity that the second quarter saw $30.2 billion worth of deals announced in the second quarter of this year.
As the sector consolidates further, one other question arises: how will production change as the number of players on the shale field shrinks?
The merger and acquisition frenzy in the U.S. oil patch is still gathering momentum and could result in even more deals than last year. The industry is yet again undergoing a complete makeover.
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 Chevron’s $53-billion merger with Hess, currently being held up by Exxon.
Indeed, the final quarter of last year saw the highest-ever M&A deal value size, with the total reaching $144 billion. For the whole year, the size of the mergers and acquisitions market in the U.S. reached $234 billion, in stark contrast with the rest of the world, where M&A activity has been in decline since 2014.
After a stellar 2023, one might think it is time to take a breather to navigate the new environment more successfully, but it appears that oil and gas companies are in a veritable race to get bigger—sooner rather than later.
Enverus said in its latest report on M&A activity that the second quarter saw $30.2 billion worth of deals announced in the second quarter of this year, noting that consolidation activity was already spilling over into other shale plays besides the Permian. The Permian has been the primary focus of dealmakers, but now they are getting interested in other assets, in places such as the Eagle Ford and the Uinta Basin.
In fact, most of the deals in the second quarter were for assets outside the Permian—deals for the Permian and the adjacent Midland Basin accounted for just 7% of all assets that changed hands in the second quarter. In the previous two quarters, the Permian and the 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 running out, which was only to be expected, really; and second, the shale patch is not only 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 with a size of $1 billion or more, Enverus also reported, suggesting that the total for the year could exceed last year’s 19 deals of a billion dollars or more. These included ConocoPhillips’ tie-up with Marathon Oil, which had a price tag of $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 the $5-billion acquisition of Grayson Mills by Devon Energy—a deal in the Bakken play—and the $1.1-billion acquisition of Point Energy Partners by Vital Energy and Northern Oil & Gas.
U.S. oil and gas is consolidating at a rapid pace. Meanwhile, in the rest of the world, merger and acquisition activity is so slow it feels like the U.S. is the only place where deals are taking place. Global Data reported last month that global M&A activity in oil and gas stood at $86 billion in the second quarter of the year, down by 20% from a year earlier.
There were 17 so-called megadeals in the three-month period, of which, based on Enverus’ data, 13 were inked in the United States. It is the place to be for oil and gas M&A—because companies have the money to buy, the motivation to sell, and the growth potential everyone likes when it comes to mergers and acquisitions. Also, despite growing regulatory pressure on the industry, oil and gas in the U.S. still has it better than other places, notably Europe.
With consolidation activity still going strong, it is only natural to ask the question of where it would all end. The answer is wherever the shareholders say it would end. Regulators are also looking into M&As in the shale patch on antitrust concerns voiced by Democratic legislators.
Until there’s consolidation space left, however, chances are the process will continue as shale producers seek to boost their acreage to secure long-term production. After all, the most marked difference between a shale well and a conventional well is that the former can start producing in a matter of months but will get depleted faster, too.
As the sector consolidates further, one other question arises: how will production change as the number of players on the shale field shrinks? In short, it will change in accordance with strategic business plans. There will be no more drilling at will from hundreds of small independents who have debt to pay down and cannot afford the luxury of responding to international prices. U.S. shale output is going to be under stricter control in the future.
This, in turn, means that U.S. shale will come to have an even more significant effect on those international prices, similar to OPEC. In this sense, U.S. oil and gas consolidation is actually global consolidation, with global implications for the industry.
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The post U.S. Oil M&A Spree Set to Surpass Last Year’s Size appeared first on Energy News Beat.
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