USA Upstream Merger Activity Gets Off to Record Start

by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas

In a release sent to Rigzone this week, Enverus Intelligence Research (EIR) outlined that U.S. upstream merger and acquisition (M&A) activity got off to a “record start” this year but warned of a slowdown.

“Following last year’s blockbuster $192 billion in U.S. upstream consolidation, 1Q24 would be on track to surpass that record with $51 billion in announced deals,” EIR noted in the release.

“However, EIR is pumping the brakes on another record-setting year as deal activity has slowed significantly in March and Q2 appears to have already lost momentum,” it added.

In the release, Andrew Dittmar, principal analyst at EIR, said deals at the start of this year “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”.

“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,” he added.

EIR noted in the release that headlining consolidation in Q1 was privately held Endeavor Energy Resources’ sale to publicly held Diamondback Energy.

“The $26 billion buyout was the largest sale of a private company Enverus has tracked,” the company pointed out in the release.

“Outmaneuvering larger rivals to secure Endeavor puts Diamondback in the front row among Permian-centric E&Ps, giving it a scale comparable to Pioneer Natural Resources prior to its sale to ExxonMobil,” it added.

The company highlighted in the release that APA also expanded in the Permian, “but via the public merger route with its purchase of smaller Callon Petroleum for $4.5 billion”.

“The acquisition significantly expands APA’s shale inventory, which previously lagged its peers as the company had balanced U.S. and international development,” EIR added.

Those two deals, plus a few smaller bolt-on acquisitions, gave the Permian a 60 percent share of total transacted upstream value, EIR stated in the release.

“Endeavor was a unique opportunity to acquire a legacy family-owned E&P with leases in the core of the Midland Basin acquired decades before Diamondback, or many of the other familiar shale names, were even in business,” Dittmar said in the EIR release.

“There are a handful of other private family companies like Mewbourne Oil and Fasken Oil & Ranch that would similarly be highly sought after if they entertained offers to sell. However, there are no indications these closely held companies are looking to exit any time soon,” he added.

“That leaves public E&Ps looking to scoop up the increasingly thin list of private E&Ps backed by institutional capital and built with a sale in mind – or figuring out ways to merge with each other,” he continued.

Continued public company consolidation does look to be the most likely route to keep M&A markets on track, both in the Permian and other plays, the release stated, adding that the Haynesville saw significant consolidation with the merger of Chesapeake Energy and Southwestern Energy.

“Unlike most other public deals that were focused on extending the years of high-quality inventory, that transaction didn’t necessarily improve Chesapeake’s years of inventory life at the combined rig count but did substantially boost its exposure to the Haynesville and opportunity to capture premium gas prices from burgeoning LNG exports starting in 2025,” EIR said in the release.

“The Chesapeake deal is also one of several that is being subjected to additional scrutiny from the Federal Trade Commission (FTC), along with Exxon’s purchase of Pioneer and Chevron’s acquisition of Hess,” it added.

Dittmar noted in the release that “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”.

“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,” he added.

In a release sent to Rigzone back in January, EIR said the fourth quarter “recorded a massive $144 billion in upstream M&A, the largest quarter EIR has tracked”.

“That pushed full-year 2023 value to more than $190 billion, also setting a record,” EIR added.

“Driving the surge in value were two historic deals: ExxonMobil’s $65 billion acquisition of Pioneer Natural Resources in the third-largest upstream deal ever by enterprise value, and Chevron purchasing Hess for $60 billion in the fourth largest ever,” it continued.

In that release, Dittmar said “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”.

“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 and secure longevity in these companies’ profitable upstream businesses,” he added.

“For the best quality resource, there are also now more buyers than sellers, driving prices upward,” Dittmar went on to state.

In a release sent to Rigzone in May last year, EIR revealed that, in the first quarter of 2023, U.S. upstream M&A saw $8.6 billion transacted in 16 deals, “with more than $5 billion in the Eagle Ford for a surprising resurgence in that mature play”.

“While deal value is down about 20 percent versus the first quarter average since 2016, deal volume also continued its multi-year collapse with a disclosed volume of 80 percent less than the Q1 average,” EIR noted in that release, adding that that resulted in an average deal size of more than $500 million.

“Last quarter was an outlier in terms of the deal targets and types for upstream transactions,” Dittmar said in this release.

“Rather than public E&Ps focusing on buying undeveloped inventory in the Permian Basin from private companies, most of the deals targeted mature assets in the Eagle Ford and included more public-to-private transactions plus a corporate merger,” he added.

by Andreas Exarheas
click here to read the original article at Rigzone.com
*this article was not written by Roseland Oil & Gas