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In a summary of U.S. third quarter 2024 upstream merger and acquisition activity, which was sent to Rigzone recently, Enverus Intelligence Research (EIR) said upstream M&A “descend[ed]… to $12 billion in 3Q24”.
“Following 12 months of heightened consolidation in oil and gas, the pace of deals significantly slowed in the third quarter of 2024 with $12 billion in announced deals, the lowest quarterly total since 1Q23,” EIR noted in the release.
The company said the drop in M&A value was largely attributable to a pause in public company consolidation, as well as fewer deals to be had in the prolific Permian Basin.
A table showing the top five operated upstream deals of 3Q24, which was included in the summary, showed Devon Energy’s $5B Grayson Mill Energy deal in top spot, followed by Quantum Capital Partners’ $1.8 billion Caerus Oil and Gas deal in second, and Vital Energy/Northern Oil and Gas’s $1.1B Point Energy Partners deal in third.
EIR stated in the summary that the most notable shift in the just-completed quarter was the lack of consolidation between publicly traded E&Ps. It highlighted that this is the first time that has happened in a quarter since 2022.
“The $188 billion in public company consolidation since the start of 2023, with 11 public deals over $2 billion, leaves significantly fewer targets to pursue,” EIR said in the summary.
“In addition, large buyers like Chevron, ConocoPhillips, Diamondback Energy and ExxonMobil have been busy closing and integrating deals, with timelines often delayed by extra anti-trust scrutiny by the Federal Trade Commission,” it added.
Andrew Dittmar, a principal analyst at EIR, said in the summary that upstream M&A was bound to drop after the unprecedented lift of corporate mergers and private equity exits since 2023.
“Those deals raised asset prices and cut the number of potential targets,” he stated in the release.
“An additional factor could have been increased volatility in crude prices during the third quarter. Any time commodities get more volatile, oil and gas deals are harder to negotiate,” he added.
“However, that is a short-term turbulence until buyers and sellers feel more confident on the direction oil prices are moving,” he continued.
While corporate M&A has slowed, the industry is not done consolidating, Dittmar noted in the summary.
“If you look out a few years from now, there are going to be fewer companies operating in the main U.S. shale plays,” he said.
“However, the path to get there may be a bit bumpier from this point,” he warned.
Dittmar stated in the summary that the most obvious deals in terms of a good strategic fit between assets and a ready seller got done earlier in the consolidation cycle.
“Buyers may need to offer higher premiums than the average 15 percent paid to selling companies so far to tempt some of these remaining companies into a deal,” he said.
“However, that needs to be balanced against not overpaying and still striking a deal that also makes sense for the acquirer,” Dittmar added.
Public Companies Likely to Play More Prominent Role
While the market waits for further corporate consolidation, asset deals by public companies are likely to play a more prominent role in upstream M&A, EIR stated in the summary.
“Companies that were buyers are now likely to sell parts of the combined portfolios,” EIR said in the summary.
“APA, which purchased Callon Petroleum in early 2024, has already been active on that front, selling a portfolio of Permian conventional assets for $950 million to a private buyer,” it added.
“Occidental also sold off a piece of its Delaware Basin position to Permian Resources for $818 million after closing the CrownRock acquisition,” it continued.
“Future non-core sales by public companies could target lower quality or extensional areas of the Permian, the Mid-Continent and areas like the Uinta Basin, where Ovintiv has been reported to be shopping its position,” it went on to state.
EIR stated in the summary that sales by private equity companies are also likely to continue to feature prominently in upstream deal activity, “with a larger focus outside the Permian Basin where there are more remaining opportunities and pricing for undeveloped drilling inventory is more reasonable”.
“Areas like the Williston and Eagle Ford, where private companies like Verdun Oil and WildFire Energy operate, offer the chance for buyers to get larger chunks of undeveloped inventory for less money per location, even if the inventory isn’t as economic to drill as the core Permian assets that sold earlier,” it added.
Dittmar noted in the summary that, “ideally in a transaction, the buyer wants to improve the overall quality of their inventory portfolio and lengthen the years of total inventory they have to drill”.
“However, with the remaining opportunities that is going to be challenging to do at a reasonable price,” he added.
“Instead, you are going to see buyers pick up bigger chunks of middle-quality inventory or buy small pieces of high-quality drilling opportunities that go right to the front of the line for development,” he continued.
In the summary, EIR said private equity has featured most prominently in deal markets as a seller of shale inventory to public companies. It noted that these firms are still raising new capital and putting it to work but outlined that this is being done “at a slower pace than before 2020”.
“With fewer opportunities to get into the main shale plays, private firms are broadening the search to areas without competition for deals from public companies,” EIR said.
“That is also leading to more private to private transactions between groups that have been invested for a lengthy time to ones that have raised fresh capital,” it added.
2Q, 3Q 2023
In a release sent to Rigzone in July, EIR said upstream M&A “sail[ed]… on with $30 billion in 2Q24”.
“Upstream M&A activity notched its third consecutive quarter of heightened value with more than $30 billion transacted,” EIR stated in that release.
“That brings year-to-date activity, including July deals, to nearly $90 billion and nearly $250 billion transacted in the last 12 months. Prior to the latest run of consolidation, quarterly M&A value had only topped $30 billion three times since the start of 2017,” it added.
A table showing the top five deals in the second quarter, which was included in that release, showed ConocoPhillips’ $22.5 billion Marathon Oil deal in first place, followed by SM Energy/Northern Oil & Gas’ $2.55 billion XCL Resources deal in second place, and Crescent Energy’s $2.106 billion SilverBow Resources deal in third.
“M&A momentum carried into the second quarter as pressure built on companies like ConocoPhillips, Devon Energy and SM Energy, that had previously stayed out of the market to keep pace with peers and grow in scale,” Dittmar noted in that release.
“In the case of ConocoPhillips and Devon Energy, running out of inventory doesn’t appear to be as high a concern, but there is still a perception that successfully navigating the maturing phase of shale requires building resource base with M&A,” he added.
In a release sent to Rigzone in October last year, EIR revealed that, in the third quarter of 2023, “U.S. upstream M&A cruised along with $14 billion transacted in 25 deals”.
“A liftoff in corporate consolidation picked up the slack of declining opportunities to buy private assets with two-thirds of deal value last quarter coming from combinations between public companies,” the company noted at the time.
“That accelerated to historic levels in October with ExxonMobil’s $65 billion acquisition of Pioneer Natural Resources in the third-largest upstream deal ever by enterprise value, and Chevron purchasing Hess for $60 billion,” it continued.
In that release, Dittmar said, “as anticipated, the pace of consolidation slowed for private E&Ps as the cream of the crop in terms of scale and quality has largely, but not entirely, been bought out”.
“The next logical step in consolidation is more tie-ups between public producers. That could have slowly built toward a historic deal like ExxonMobil’s purchase of Pioneer but instead that happened right out of the gate and could well be the largest deal of the shale era,” he added.
To contact the author, email andreas.exarheas@rigzone.com
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