Oil and Gas Merger Mania To Continue in 2024 | OilPrice.com

U.S. shale patch activity this year picked up where 2023 left off-with an acquisition of an oil and gas producer in the Permian basin. 

Consolidation in the industry accelerated in the second half of 2023, and it looks like 2024 will bring more of the same-mergers and acquisitions in which large companies become even larger by purchasing smaller and independent companies and their top-tier assets in the most prolific U.S. shale play. 

U.S. shale producers are positioning to gain access to high-quality drilling locations in the future and could consider moves in M&A before they actually need more drilling sites, according to Wood Mackenzie. 

The large firms continue to bet on growing oil and gas demand and the need for their hydrocarbons for at least another decade. Focusing on the Permian, which still has a lot of oil, is a bet on continuous demand for oil and gas.  

Analysts and industry executives expect the consolidation drive that began in 2023 to continue this year, with the potential of more mega-deals of the scale that Exxon-Pioneer and Chevron-Hess announced at the end of last year. 

2023 M&A Mania 

In October, Exxon announced a deal to buy Pioneer Natural Resources in an all-stock transaction valued at $59.5 billion. The implied total enterprise value of the transaction, including net debt, is approximately $64.5 billion.

Exxon said back then 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 undeveloped U.S. unconventional inventory position.” 

Weeks later, Chevron said it would buy Hess Corporation in an all-stock transaction valued at $53 billion with a total enterprise value, including debt, at $60 billion.  

Chevron had already made an acquisition in 2023, buying shale firm PDC Energy in an all-stock transaction valued at $6.3 billion, gaining high-quality assets adjacent to its positions in the Denver-Julesburg (DJ) and the Permian Basins. 

“PDC’s attractive and complementary assets strengthen Chevron’s position in key U.S. production basins,” Chevron chairman and CEO Mike Wirth said in May. 

The deal-making of 2023 also included Permian Resources buying Earthstone Energy in an all-stock deal valued at $4.5 billion, which is expected to create a $14-billion premier producer in the Delaware basin in the Permian.

Occidental Petroleum also hopped on the M&A bandwagon by acquiring Permian oil and gas producer CrownRock for cash and stock in a deal valued at around $12 billion, including debt.

The acquisition will boost Occidental’s premier Permian portfolio with the addition of around 170,000 barrels of oil equivalent per day (boed) of high-margin, lower-decline unconventional production in 2024, as well as approximately 1,700 undeveloped locations, Oxy said.

2024 Could Be Another Banner Year for M&A 

As soon as 2024 began, APA Corporation announced it would buy Permian oil and gas producer Callon Petroleum Company in an all-stock transaction valued at around $4.5 billion, including Callon’s net debt. 

The combination of Callon’s Delaware-focused footprint with APA’s Midland-focused footprint provides scale and balance in the Permian Basin for the company that will result from the acquisition, the two firms say. 

“This transaction is aligned with our strategy of maintaining and growing a diversified portfolio, underpinned by large-scale core areas of operation while continuing to build a portfolio of medium and longer-term exploration-driven development opportunities,” APA’s chief executive and president John J. Christmann IV said.  

The deal announced in the first days of 2024 will be one of many this year, analysts believe. 

Industry executives of companies active in the Permian also expect more large-size deals to be announced in the coming months, according to the latest Dallas Fed Energy Survey. 

Of the 122 executives responding to a question in the survey, 77% said they expect more acquisitions of $50 billion or more to occur in the next two years.  

Rethinking inventory in the U.S. shale patch is one of the top themes in the global upstream sector currently, Fraser McKay, Head of Upstream Analysis at Wood Mackenzie, wrote this week.  

Shale operators could look to counter the trend of gassier, less oil-rich wells in the second half of the decade by acquiring additional high-quality locations now, according to McKay. 

“However, the scarcity of viable acquisition targets is a growing issue. With demand for quality inventory making M&A increasingly expensive, many exploration and production (E&P) firms may be considering potential deals long before they have a need for more well locations,” McKay said. 

As early as October 2023, after Exxon and Chevron announced their respective deals, Enverus Intelligence Research (EIR) said that “the moves by ExxonMobil and Chevron are likely to ignite further consolidation among smaller oil and gas companies as they scramble to remain competitive and secure remaining drilling opportunities.” 

The large independents are also likely to consider acquisitions, targeting smaller and mid-size producers, according to Enverus.  

“Within U.S. shale, the most attractive acquisition targets are going to be companies with exposure to the Permian Basin,” said Andrew Dittmar, senior vice president at EIR.    

By Tsvetana Paraskova for Oilprice.com

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