Record M&A in the fourth quarter of 2023 is driven by ExxonMobil and Chevron deals
Energize Weekly, January 31, 2024
Upstream oil and gas mergers and acquisitions hit a record $144 billion in the fourth quarter of 2023 driven by two mega-deals – ExxonMobil’s $65 billion acquisition of Pioneer Natural Resources and Chevron’s $60 billion purchase of Hess, according to Enverus Intelligence Research.
The fourth quarter activity raised M&A activity for the year to $190 billion – also a record.
The ExxonMobil acquisition was the third-largest upstream deal ever and the Chevron purchase was the fourth largest.
“Oil and gas is undergoing a historic consolidation wave comparable to what occurred in the late 1990s and early 2000s giving rise to the modern supermajors,” Andrew Dittmar, Enverus senior vice president, said in a statement.
“After a decade of lowered investment in exploration and with the major U.S. shale plays largely defined, M&A has become the preferred tool to replace declining reserves,” Dittmar said. “For the best quality resource, there are also now more buyers than sellers, driving prices upward.”
Among the shale resource plays in the U.S., the Permian Basin, which straddles Texas and New Mexico, dominated M&A activity with a $103 billion in deals.
The M&A market continued to trend toward bigger transactions. The number of deals worth more than $1 billion continued to grow, including six mergers between public companies with an average value of $4 billion.
The Permian lure, Enverus said, was that it held the bulk of the remaining high-quality drilling opportunities and the greatest potential for resource expansion.
In addition to the ExxonMobil purchase of Pioneer, other Permian focused activity included Occidental Petroleum’s purchase of CrownRock L.P. for $12 billion in December 2023.
“The Permian was a juggernaut for deals in 2023, both for private sales and corporate M&A,” said Dittmar. “Buyers increasingly showed a willingness to pay whatever it took to boost their footprint in this critical play, and prices for future drilling inventory climbed to new highs.”
It is unlikely that 2024 will be a repeat of 2023 as the list of attractive takeover targets has grown short, Dittmar said. There do remain some, such as privately held Endeavor Energy Resources.
With the Permian assets now largely consolidated, and few other domestic plays offering similar opportunities, Enverus said operators may increasingly look outside the U.S., even though in a “deglobalized” world those investments may be more challenging.
Chevron’s acquisition of Hess, largely for its presence in Guyana, is one example of an operator going abroad for such assets.
“Canada stands out for U.S. companies as offering a large resource base in a developed and stable country,” Enverus said.
The Montney formation in British Columbia, for example, has nearly 20 years of high-quality drilling inventory at current development rates, and will likely be eyed by some U.S. operators, according to Enverus.
As the big companies land mega-deals this will lead them to some “portfolio pruning,” particularly in Texas’ Eagle Ford, the Bakken in North Dakota and in Oklahoma, which could offer acquisitions for smaller exploration and production companies.
“That should be a welcome development for some of the smaller public E&Ps plus private capital that has been priced out or lacked the scale to compete in the strategic core Permian deals,” Dittmar said.
