Q1 2024 upstream M&A activity in the oil and gas sector, as summarized by Enverus Intelligence Research (EIR), highlights a robust start to the year, largely driven by ongoing strategic consolidation trends from the previous year. Here are some key takeaways from the summary:
- Record-Breaking Pace: The first quarter of 2024 saw a significant $51 billion in announced deals, suggesting a potential surpassing of last year’s $192 billion total if this pace continues. The largest transaction noted was the $26 billion sale of Endeavor Energy Resources to Diamondback Energy, marking a significant consolidation within the industry.
- Permian Basin Focus: The Permian Basin remains central to the consolidation strategy, attracting the most significant portion of M&A activity. This trend is driven by the basin’s high-quality inventory of oil and gas resources, making it a prime target for companies looking to enhance their asset bases.
- Public and Private Dynamics: The market is seeing a blend of strategies, with public companies expanding through mergers and acquisitions, as seen in APA’s acquisition of Callon Petroleum, and private companies like Endeavor Energy Resources being acquired. This suggests a market favoring scalable operations and potentially indicating a strategy among private companies to build assets with an eventual sale in mind.
- Regulatory Scrutiny Increasing: Several of the larger deals, including those involving major players like ExxonMobil and Chevron, are under heightened scrutiny by the Federal Trade Commission (FTC). This increased regulatory oversight reflects a growing concentration within key U.S. unconventional plays and may influence future consolidation strategies, potentially driving companies to diversify geographically or across different resource plays to mitigate regulatory risks.
- Expanding Geographical Focus: Beyond the Permian, companies are looking at other plays like the Eagle Ford and SCOOP | STACK regions, which offer a mix of oil and gas production opportunities. These areas are also attractive due to lower asset prices and higher fragmentation, which could be favorable for acquisitions, especially from private equity-backed E&Ps.
- International Interest: The summary also notes increasing interest from international buyers, such as Baytex Energy, INEOS, and Tokyo Gas, particularly in plays positioned to benefit from the LNG export market. This indicates a global dimension to the M&A activity, reflecting broader strategic interests in securing energy supplies.
- Private Equity’s Role: The role of private equity remains significant, with these entities looking for opportunities to reload their portfolios after significant sales to public companies. Their higher risk tolerance may lead them to explore secondary targets or new regions, contributing to the dynamic nature of the industry’s M&A landscape.
This summary underscores a continuing trend of strategic consolidations within the oil and gas industry, driven by both economic and regulatory factors, with a significant focus on optimizing asset portfolios and expanding operational scale.
