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Bigger - A New Report on Upstream Consolidation in the Permian and Other Key Plays

Even now, three-plus years after the start of the oil and gas industry’s biggest consolidation in a quarter century, hardly a month goes by without another major M&A announcement. Just this week, Civitas Resources said it will acquire acreage and production in the Permian from Vencer Energy for $2.1 billion. The primary drivers of these deals — many of which are valued in the billions of dollars — are clear. Among other things, E&Ps are seeking scale and the economies of scale that come with it. They also have come to believe that it makes more sense to grow production through M&A than through aggressive capital spending. And, for some producers not yet involved in the all-important Permian, acquiring even a smaller E&P there provides a foothold to build on. In today’s RBN blog, we discuss highlights from our newly released Drill Down report on the past 12 months of upstream M&A activity in the U.S. oil patch.

So far, the 2020s have been a period of almost unprecedented consolidation within the oil and gas industry. Not since the late 1990s has U.S. merger-and-acquisition activity among producers been so frenetic. Back then, a plunge in crude oil prices spurred mega-deals that helped to form many of today’s supermajors and large E&P independents: Exxon joined with Mobil, BP with Amoco and ARCO, Chevron with Texaco, Anadarko with Union Pacific and Kerr McGee, ConocoPhillips with Burlington Resources, and Devon with Mitchell Energy and Ocean Energy.

Another tsunami of M&A might have come with the oil price crash in 2014-15. After all, many producers had been massively outspending cash flow in the early years of the Shale Era to build acreage inventories in multiple unconventional plays. But the big wave didn’t happen. Instead, most E&Ps turned inward, shedding non-core assets to concentrate on core plays.

The latest M&A boom

Then came early 2020 — who in the hydrocarbons space can forget it? In just a few weeks’ time, OPEC+ collapsed, COVID lockdowns were initiated, and other factors pushed the U.S. E&P sector to the brink of insolvency. Crude oil prices had crashed to $20/bbl — one-third the level at the start of that fateful year — and producers had shifted to survival mode, slashing capex, canceling infrastructure projects, and eyeing new, more dire worst-case scenarios.

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