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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Headline-Grabbing Deals Mask Big Drop In Shale M&A

  • While there have been some headline-grabbing big deals recently, on a quarterly basis the stats tell a different story. 
  • According to GlobalData’s U.S. Lower 48 Unconventional Oil and Gas (Major Shale Plays) Market Analysis and Forecast, 2021-2026 report, shale-related deal volume fell a whopping 60% Y/Y.
  • Nevertheless, Enervus says that the total value of future deals is likely to rise again in the Permian.
Shale rig

Energy markets have been lackluster in the current year, and it appears the malaise and bearishness have spread into the M&A sector. Oil and gas executives have become increasingly hesitant to pull the trigger on new deals, with mergers in the U.S. energy sector decreasing both in volume and deal value. 

While there have been some headline-grabbing big deals recently, on a quarterly basis the stats tell a different story. 

According to GlobalData’s United States of America (USA) Lower 48 Unconventional Oil and Gas (Major Shale Plays) Market Analysis and Forecast, 2021-2026 report, shale-related deal volume fell a whopping 60% Y/Y with only 21 deals consummated during the quarter while total deal value fell 38%Y/Y to $9.5B.

Most of those deals were struck in the Eagle Ford shale of South Texas, where assets can be purchased for the value of existing production alone. That’s quite unnerving considering that energy experts generally expected a deluge of M&A action with the sector enjoying some of its highest profits in years. The biggest deals during the quarter was the acquisition of Eagle Ford operator Ranger Oil by Canada's Baytex Energy (NYSE:BTE) for $2.5 billion as well as Chesapeake Energy’s (NASDAQ:CHK) asset sale to WildFire Energy for $1.42 billion as well as a separate $1.4 billion sales agreement with Britain's INEOS.

"The collapse in deal counts is really remarkable, with the low count likely the new normal in shale M&A. We are seeing far fewer opportunities for deals in the current market that is much more consolidated and has much less undeveloped resources," said Dittmar. 

“While opportunities still exist, shale M&A may be in its latter stages" Andrew Dittmar, a director at Enverus, has said, blaming low commodity prices for the sharp slowdown.

Nevertheless, Enervus says that the total value of future deals is likely to rise again in the Permian, noting that top-tier locations there have sold for $2 million and up to $3 million meaning only companies with deep pockets will be able to buy into the basin. Related: Visualizing All New Renewables Projects In The U.S. In 2023

Source: GlobalData Oil & Gas Intelligence Center

Changing Playbook

The last two energy crises that threatened hundreds of energy companies with bankruptcy have rewritten the O&G M&A playbook. Previously, oil and gas companies made numerous aggressive tactical or cyclical acquisitions in the wake of a price crash after many distressed assets became available on the cheap. However, the 2020 oil price crash that sent oil prices into negative territory has seen energy companies adopt a more restrained, strategic, and environment-focused approach to cutting M&A deals. Further, U.S. shale drillers have abandoned their trigger-happy drilling days and are mostly sticking to their pledge to cut costs, return money to shareholders in dividends and share buybacks, and also pay down debt.

A similar narrative is playing out in Canada’s Oil Patch.

After years in the doghouse, Canada’s famous Oil Patch is enjoying a rare oil boom with oil and gas revenues expected to reach record levels in the current year if prices remain elevated.

Typically, during past oil booms after a downturn, Canada’s OilPatch went through a predictable pattern of new startups setting up shop; soaring land prices, and companies cranking up production. But things are playing out differently during the current boom cycle despite resurgent oil demand and oil prices at multi-year highs.

"I've never seen this kind of response to demand increases before--ever," Tamarack Valley Energy (OTCPK: TNEYF) CEO Brian Schmidt has told the Canadian Broadcasting Corporation (CBC).

recent report by BMO Capital Markets says the North American oil and gas sector is enjoying its strongest financial position in years, but the excess cash will largely be distributed to shareholders instead of going to drilling new wells and making acquisitions.


Nevertheless, it’s probably a matter of time before oil and gas executives return to the M&A deal table.

Energy expert Energy Intelligence Group has predicted that not only will oil demand grow in 2023 but it will continue doing so till the end of the decade. According to the analyst, global oil demand will grow to 101.2 million barrels per day in the current year and will continue growing to hit 106 mb/d by 2030. Global oil demand will grow by 1.5 mb/d in 2023, with China accounting for 650,000 b/d after the country abandoned its rigorous zero-Covid policy. Indeed, this year’s average will top the previous high of 100.6 mb/d set in 2019. M&A offers Bg Oil the easiest path for production growth when, and if, oil demand grows.

While this is great news for the oil bulls, Energy Intelligence says that future demand growth will primarily be driven by petrochemicals rather than transport fuels, and has also said that its base case is a plateau rather than a decline. 

By Alex Kimani for Oilprice.com

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