Oil and gas mergers set to cool after a hot first quarter in 2024 with $51 billion in deals
Energize Weekly, May 1, 2024
Mergers and acquisitions (M&A) in the U.S. upstream oil and gas sector in the first quarter of 2024 kept up last year’s record-setting pace with $51 billion in deals, but the second quarter already showed signs of “lost momentum,” according to Enverus Intelligence Research (EIR).
In 2024, there were a record $192 billion in deals with a significant consolidation of domestic upstream resources, primarily in the Permian Basin, which straddles Texas and New Mexico.
The first quarter of 2024 was led by the $26 billion cash-and-stock buyout of privately held Endeavour Energy Resources by Diamondback Energy.
Diamondback Energy outmaneuvered larger rivals to secure the Endeavour Permian assets, making it the third largest producer in the basin behind ExxonMobil, which acquired Pioneer Natural Resources for $59.5 billion in 2023, and Chevron.
APA Corporation also bolstered its presence in the Permian with the purchase of Callon Petroleum for $4.5 billion. APA’s shale inventory had lagged its peers.
When the deal was announced in January, Gabriele Sorbara, an analyst at Siebert Williams Shank & Co., told Reuters that “it goes a long way to addressing investor concerns surrounding inventory depth.”
The Diamondback Energy and APA deals, plus a “few smaller bolt-on acquisitions” in the Permian accounted for 60 percent of the total first quarter deal value, EIR said.
“Deals at the start of 2024 were driven by the same factors that led to last year’s marathon of mergers, foremost among them a desire to lock up high-quality inventory when it is available,” Andrew Dittmar, principal analyst at EIR, said in a statement.
“Most of that inventory is going to be found in the Permian, so it is unsurprising the prolific basin was yet again the primary driver for M&A within oil and gas,” Dittmar said.
There are a few private family companies like Mewbourne Oil and Fasken Oil & Ranch that would be acquisition targets if they decided to sell, although there are no indications they are interested in selling, Dittmar said.
In the Haynesville Shale, which covers parts of east Texas and Louisiana, Chesapeake Energy acquired Southwestern Energy in a $7.4 billion all-stock deal, increasing Chesapeake’s exposure in the natural gas play and its chances of capturing premium gas prices from the burgeoning demand for liquefied natural gas exports.
Gulf Coast assets, in the Haynesville and the Eagle Ford, have also drawn interest from international buyers, and that could continue, EIR said. There have already been acquisitions by Canada’s Baytex Energy, United Kingdom-based INEOS, and Japan’s Tokyo Gas.
“BP would be a potential candidate to expand in either the Haynesville or the Eagle Ford,” Dittmar said. “The company has maintained a presence in both plays and could look to boost U.S. unconventional exposure to keep pace with U.S. peers Exxon and Chevron.”
The increasing consolidation has caught the eye of federal regulators. The Chesapeake deal, along with ExxonMobil’s purchase of Pioneer and Chevron’s $53 billion acquisition of Hess Corp. are under review by the Federal Trade Commission (FTC).
“The heightened review is a function both of an FTC that is increasingly active in anti-trust enforcement and a growing concentration of ownership of the key U.S. unconventional plays,” Dittmar said. “Ultimately, the most likely outcome is all these deals get approved but federal regulatory oversight may pose a headwind to additional consolidation within a single play. That may force buyers to broaden their focus by acquiring assets in multiple plays.”
EIR said it is already “pumping the brakes” on the chances of another record-setting year as deal activity had slowed sharply in the second quarter.
