As 2023 was drawing to a close, folks with 401(k) plans and IRAs were wondering whether stocks would have another great year in 2024. Many of us tracking oil and gas E&Ps were asking a similar question about upstream M&A: Is there any way to match the consolidation frenzy that started in mid-2020 and didn’t let up? The answer is, yes — 2024 was another barn-burner year for acquisitions. (And for Wall Street and our investments!). In today’s RBN blog, we discuss highlights from our new Drill Down report on the past year in producer M&A.
The urge to merge is still with us. Four-plus years after the start of the oil and gas industry’s biggest consolidation in a quarter century, new M&A announcements keep coming. The primary drivers of these deals — many of which are valued in billions of dollars — are clear. Among other things, E&Ps seek scale and the economies 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, buying another E&P lock, stock and barrel is the best way to either expand in the all-important Permian or diversify into other plays like the Bakken, the Eagle Ford, the Denver-Julesburg (DJ) and the Uinta. (Offshore Guyana, too, for Chevron!)
As we said in our last Drill Down report on E&P M&A in late 2023, 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 wave 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 tsunami didn’t happen. Instead, most E&Ps turned inward, shedding non-core assets to concentrate on core plays.
Then came early 2020. In just a few weeks’ time, OPEC+ coordination on oil production 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. Somehow, out of that hell emerged a new — and still ongoing — frenzy of M&As.
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