This year, U.S. shale block activity picked up at the end of 2023 with the acquisition of an oil and gas producer in the Permian Basin.
Consolidation in the sector accelerated in the second half of 2023, and 2024 looks set to bring more of the same M&A, with large companies getting bigger by acquiring smaller independent companies and their top assets in the most productive shale gas fields in the United States.
U.S. shale oil producers are gearing up to secure high-quality drilling sites in the future and may consider mergers and acquisitions before more drilling sites are actually needed, Wood Mackenzie said.
Large companies continue to bet on growing oil and gas demand, and demand for their hydrocarbons for at least the next decade. Focusing on the Permian, where there is still plenty of oil, is a bet on the continued demand for oil and gas.
Analysts and industry executives expect the M&A campaign that began in 2023 to continue this year, with the potential for larger deals like those announced late last year by Exxonmobil-Pioneer Natural Resources and Chevron-Hess.
M&A frenzy in 2023
In October, ExxonMobil announced the acquisition of Pioneer Natural Resources in a $59.5 billion deal. The total implied enterprise value of the transaction, including net debt, is approximately $64.5 billion.
Exxonmobil said at the time that the proposed transaction "transforms Exxonmobil's upstream portfolio, more than doubling the company's Permian footprint and creating an industry-leading, high-quality, high-return position of undeveloped U.S. unconventional inventory." ”
A few weeks later, Chevron said it would buy Hess in a $53 billion all-** deal, with a total enterprise value of $60 billion, including debt.
Chevron has already made acquisitions in 2023 with the acquisition of shale company PDC Energy in a $6.3 billion all-** deal for its high-quality assets in the Denver-Julesburg (DJ) and Permian Basins.
"PDC's attractive and complementary assets strengthen Chevron's position as a major producing basin in the United States," Chevron Chairman and Chief Executive Officer Mike Wirth said in May. ”
The 2023 deal also includes Permian Resources' $4.5 billion all-** acquisition of Earthstone Energy, which is expected to create a $14 billion major producer in the Permian Delaware Basin.
Octidental Petroleum also jumped on the M&A bandwagon, buying Permian oil and gas producer Crownrock for cash and **, in a deal worth about $12 billion, including debt.
OctiDental said the acquisition will add about 170,000 barrels of oil equivalent per day in 2024 to high margins, lower declining unconventional production, and about 1,700 undeveloped territories, thereby boosting Octidental's premier Permian portfolio.
2024 could be another glorious year for M&A
At the start of 2024, APA announced that it would acquire Permian oil and gas producer Callon Petroleum Company in a fully ** deal worth about $4.5 billion, which included Callon's net debt.
The companies said the combination of Callon's Delaware-focused footprint in the U.S. and APA's Midland-focused footprint provides the company with scale and balance in the Permian Basin, which will be the result of the acquisition.
John J., CEO and President of APA"This transaction is in line with our strategy to maintain and grow a diversified portfolio based on large core business areas, while continuing to build a portfolio of medium- to long-term exploration-driven development opportunities," Christmann IV said. ”
Analysts believe that the deals announced in the first days of 2024 will be among many this year. According to the latest Dallas Federal Energy survey, industry executives at Permian-active companies also expect more mega deals to be announced in the coming months. Of the 122 executives who responded to the survey questions, 77 percent said they expect more acquisitions of $50 billion or more over the next two years.
Fraser McKay, head of upstream analytics at Wood Mackenzie, wrote this week that rethinking inventories in U.S. shale blocks is one of the top themes in the global upstream industry right now. Shale oil operators can now respond to the trend of higher natural gas and lower oil wells in the second half of the decade by acquiring more high-quality sites, McKay said.
"However, the scarcity of viable acquisition targets is a growing concern," Mr McKay said. With the demand for high-quality inventory making M&A increasingly costly, many E&P companies may be considering potential deals long before they need more well pads. ”
Back in October 2023, following the announcement of their respective deals, Enverus Intelligence Research (EIR) said that "the moves by ExxonMobil and Chevron could trigger further consolidation of smaller oil and gas companies as they scramble to remain competitive and secure remaining drilling opportunities." ”
Enverus said large independent players may also consider acquisitions, targeting small and medium-sized producers. Andrew Dittmar, senior vice president of EIR, said: "Among the U.S. shales, the most attractive acquisition targets will be companies with exposure to the Permian Basin. (Compiled by Xiao Chen).
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