U.S. oil and gas M&A tops $30 billion for the third straight quarter
Energize Weekly, August 7, 2024
Oil and gas mergers and acquisitions (M&A) in the second quarter of 2024 marked the third consecutive quarter of $30 billion or more in transactions, according to energy consultant Enverus Intelligence Research.
Before this run, quarterly deals had only exceeded $30 billion three times since 2017. Through July, there have been almost $90 billion in mergers and acquisitions this year, with $250 billion in deals in the last 12 months.
“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,” Andrew Dittmar, principal analyst at Enverus, said in a statement.
The biggest acquisition of the quarter was ConocoPhillips’ purchase of Marathon Oil for $22.5 billion. It was the fifth largest U.S. upstream deal in the past decade. SM Energy also purchased the Uinta Basin assets of XCL Resources for $2.6 billion.
“SM Energy made a move into Utah’s underdeveloped Uinta Basin with its purchase of XCL Resources because the company feels it can develop new productive intervals and expand the resource base to justify its entry price,” Enverus said.
The costs of buying assets, especially in the Permian Basin, have been increasing, with the highest quality inventory selling at a premium. This has led some companies to look at other plays.
“There has been a scramble for middle-tier inventory that provides strong returns even if it isn’t as economic as core Permian assets,” Dittmar said.
Private equity investors and privately held companies have capitalized on the rising prices, selling off more than $100 billion to public companies since 2020.
Plays such as the Eagle Ford and Williston offer the chance to also produce out of older horizontal wells by refacing them, Enverus said. ConocoPhillips, in investor presentations, highlighted the refrac potential in its Marathon Oil assets.
“Proving up new economic drilling locations is a top priority for companies and has been the most cost-effective way to extend inventory life,” Dittmar said.
“The opportunity to revisit older wells is something companies are paying increasing attention to, both within their existing assets and when evaluating deal opportunities,” Enverus said. “Increased refrac potential should generate additional M&A interest in more mature areas like the Eagle Ford and Williston.”
After the ConocoPhillips and SM Energy deals, the two largest transactions were Crescent Energy’s purchase of the Eagle Ford assets of SilverBow Resources for $2.1 billion and Matador Resources’ $1.9 billion purchase of the Ameredev II’s Delaware Basin acreage.
“What is substantially different in this market, and a major shift in the industry, is that companies like Matador Resources and SM Energy are willing to prepay for inventory in deals that has yet to be fully proven up by horizontal wells,” Dittmar said.
The next step, Dittmar said, is for public companies that have made acquisitions to look to trim their portfolios to divest from less attractive assets.
