US oil and gas mergers and acquisitions (M&A) have reached a quarterly peak following a remarkable year in 2023.
According to data provider Enverus, deals in the US oil and gas sector surged to a record $51 billion in the first quarter of this year, continuing the intense merger activity seen last year, primarily in the top US shale region.
Energy firms have been eager to expand their oil and gas drilling assets, focusing particularly on the Permian Basin in West Texas and New Mexico. The break-even costs for producers in this region are approximately $64 per barrel.
With oil prices averaging around $77 per barrel last quarter and currently trading near $83 per barrel, the attractiveness of investing in this region has been high.
Andrew Dittmar, principal analyst at Enverus Intelligence Research, highlighted, “Most of the high-quality drilling prospects in the US are in the Permian, so it’s no surprise that this prolific basin continues to drive M&A activity in the oil and gas sector.”
The Largest Deals
The largest deal announced last quarter was Diamondback Energy’s $26 billion bid for Endeavor Energy Partners. This merger brings together two major players in the Permian Basin.
Other significant deals in the period include Apache Corp parent company APA’s $4.5 billion acquisition of Permian oil rival Callon Petroleum, and Chesapeake Energy’s $7.4 billion deal for Southwestern Energy, which focuses on natural gas.
However, some of these acquisitions, including Chesapeake’s deal and the blockbuster deals by Exxon Mobil and Chevron last year, have been delayed due to antitrust reviews.
Dittmar explained that these delays are because these deals would consolidate significant holdings in the Permian or Haynesville shale fields.
Dittmar added, “While it’s likely that all these deals will eventually be approved, federal regulatory oversight may slow down further consolidation within a single play.”
The first quarter saw a total of 27 deals, up from 20 in the same period last year, with Enverus estimating that 60% of the total transaction value was in the Permian Basin.
However, Dittmar believes that this high pace of M&A activity is unlikely to continue. With strong oil prices, more companies are now able to justify holding onto non-core drilling assets instead of divesting them, as they have done in the past.
“Inventory scarcity is the key theme among exploration and production companies,” Dittmar said.