What started as a pretty regular year in mergers and acquisitions in oil has turned into a year to remember after Exxon and Chevron announced massive merger plans.
Now, Occidental has followed suit, announcing a deal for Permian producer CrownRock, leading some analysts to predict that the consolidation in the oil space could leave the industry with just a few big players by the end of the decade.
Wood Mackenzie this week reported that the value of mergers and acquisitions in the Permian play since the start of the year has hit a record of over $100 billion. It's not hard to believe the figure, given that just Exxon's $60-billion proposal for Pioneer Natural Resources and Chevron's offer of $52 billion for Hess Corp. already exceed $100 billion.
Yet there have been other big deals, too, such as Permian Resources' $4.5-billion offer for Earthstone Energy and the $4.3 billion that Ovintiv paid for Permian acreage to private equity firm EnCap.
"This is a new era in the shale industry," Matthew Bernstein, senior shale analyst at Rystad Energy, told the Financial Times when the news broke that Exxon was acquiring Pioneer Natural Resources. "It's hard to overstate the importance that this deal will have in terms of the Permian becoming consolidated."
The Permian needs consolidation, too. Drillers have been warning for a while that untapped acreage is running out, so acquisitions have essentially become the only option for producers that want to grow in the area-and many big players do want to grow in the area.
Earlier this year, the Energy Information Administration predicted that oil output in the Permian was declining for several months in a row. For each of these months the EIA had to revise its figures after getting actual production data that showed output in the Permian was actually increasing. Related: Andurand's Wrong-Way Bet on Oil Cost Fund 54%
There is still plenty of oil in the Permian that can be extracted relatively cheaply. That is why everyone with money to spend is rushing there to buy smaller rivals and expand. And that is why some believe that by 2030, the U.S. oil industry could be a very different place than it is now.
"There's not a ton of deals like this from a private to public, but there's a lot of public to public," Cole Smead, chief executive of Smead Capital Management, told Yahoo News this week. "We're probably going to end the 2020s with 10 oil companies in America."
That would be quite an evolution of an industry that sprouted hundreds of small independent drillers at the height of the shale boom in the 2000s and 2010s. Yet an evolution is what it is: not all of those hundreds of small independents could survive first the oil price rout of 2014 and then the pandemic. The big players, meanwhile, got bigger and richer during the post-lockdown economic rebound.
The consolidation, then, was only a matter of time, and this time appears to be now. "This transaction [Oxy's acquisition of CrownRock] cements an absolute banner year in Permian acquisitions and divestments spend. Coupled with other mega 2023 deals like ExxonMobil and Pioneer, it solidifies Permian scale and multi-decade longevity as a 'must have' trait for US Majors and Super-Independents," Wood Mackenzie upstream research president Robert Clarke said.
Many analysts seem to expect that the consolidation drive will continue next year as well, suggesting that even the end of 2024 could see a lot fewer operators in the star play of the U.S. shale patch. This would mean control over production levels in the hands of fewer decision-makers as there will no longer be small independents drilling to survive and keep paying their debts. Whether that's good or bad news depends on perspective.
By Irina Slav for Oilprice.com
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More