Unprecedented Consolidation Marks Record-Breaking Year for Oil and Gas M&A

by | Jan 30, 2024 | United States, Crude, Investment Experts, Investors, Production, Resiliency

The resilience and adaptability of the industry are evident as it navigates challenges and capitalizes on opportunities in this era of historic consolidation.

Introduction:

In a groundbreaking year for the oil and gas industry, unprecedented consolidation has taken center stage, setting records for merger and acquisition (M&A) activity. Analytics firm Enverus reports that the fourth quarter alone witnessed a staggering $144 billion in upstream M&A, contributing to a record-setting annual total of $190 billion in 2023. This surge, reminiscent of the late 1990s and early 2000s, is reshaping the industry landscape, with major players such as Exxon Mobil, Chevron, and Occidental Petroleum leading the charge.

The consolidation wave is driven by a strategic response to a decade of reduced investment in exploration and the maturation of major U.S. shale plays. Andrew Dittmar, Senior Vice President at Enverus, notes that M&A has become the preferred tool for companies to replace declining reserves and secure longevity in their upstream businesses. Notably, the Permian Basin, situated in Texas and New Mexico, emerged as a focal point for deals, with buyers showing a willingness to pay a premium to expand their footprint in this vital play.

Deal Highlights:

Exxon Mobil, Chevron, and Occidental Petroleum played pivotal roles in fueling the record-setting consolidation, with bids and blockbuster takeovers contributing significantly. The Permian Basin, identified as a “juggernaut for deals” in 2023, witnessed prices for future drilling inventory reaching new highs. Although 2024 is expected to see a moderation in the M&A boom due to limited assets available for takeover, ongoing dealmaking is anticipated, potentially involving privately-held Endeavor Energy Resources.

Sector-Specific Breakdown:

Enverus reports that M&A activity in 2023 was overwhelmingly focused on oil, amounting to $186 billion in deals, while gas transactions accounted for $6 billion. However, interest in gas is expected to grow, particularly with the U.S. industry gearing up to increase liquefied natural gas exports over the next three years. Despite challenges such as OPEC+ output curbs, the U.S. oil and gas industry had a historic year, solidifying its position as the largest crude producer in history.

Outlook for 2024:

The momentum from 2023 is expected to carry into 2024, albeit with a potential slowing of the M&A boom. Limited availability of assets worth acquiring will influence the pace, but deal activity is projected to persist. Notably, divestitures and the potential offer of Endeavor Energy Resources are anticipated to contribute to continued deal mania. Buyers, including private-equity firms armed with new capital, may drive a flurry of smaller deals by hiving off non-core assets from larger acquisitions.

Conclusion:

As the oil and gas industry experiences its most significant consolidation wave to date, investors and prospective partners are closely monitoring the evolving landscape. The dynamic M&A activity, driven by major players securing their positions and addressing declining reserves, sets the stage for a transformative period in the sector. The resilience and adaptability of the industry are evident as it navigates challenges and capitalizes on opportunities in this era of historic consolidation.

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