• 3 minutes e-car sales collapse
  • 6 minutes America Is Exceptional in Its Political Divide
  • 11 minutes Perovskites, a ‘dirt cheap’ alternative to silicon, just got a lot more efficient
  • 5 days How Far Have We Really Gotten With Alternative Energy
  • 4 days By Kellen McGovern Jones - "BlackRock Behind New TX-LA Offshore Wind Farm"
  • 11 days Natron Energy Achieves First-Ever Commercial-Scale Production of Sodium-Ion Batteries in the U.S.
  • 11 days Bad news for e-cars keeps coming
  • 10 days The United States produced more crude oil than any nation, at any time.
  • 13 days RUSSIA - Turkey & India Stop Buying Russian Oil as USA Increases Crackdown on Sanctions
Oil Bulls See Light at the End of the Tunnel

Oil Bulls See Light at the End of the Tunnel

Oil prices have been climbing…

Africa Emerges as Focal Point in Global Oil and Gas Exploration

Africa Emerges as Focal Point in Global Oil and Gas Exploration

Africa, particularly nations like Guyana…

Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

More Info

Premium Content

The Permian Will Lead U.S. Oil Deal-Making

  • This year could be a turning point for U.S. upstream takeovers.
  • Flush with cash, drillers are looking to add top tier drilling locations.
  • McKinsey expects free cash flows in the industry to remain high in 2023.
Permian rig

A new wave of mergers and acquisitions is coming to the U.S. oil patch, and the most prolific shale basin, the Permian, is set to lead the deal-making activity in the industry. 

This year could be a turning point for U.S. upstream takeovers as analysts expect activity to pick up following a lackluster M&A scene in the shale patch last year despite the higher oil prices.  

Record cash flows in the industry and dwindling inventory of prime drilling locations for many smaller producers have set the stage for a new raft of consolidation in the U.S. oil industry, analysts say. Deals in natural gas, on the other hand, are expected to remain subdued because of the low benchmark gas prices in North America.  

Sluggish M&A Activity In 2022

In 2022, the number of M&As in the U.S. upstream segment fell to the lowest level since 2005, with buyers increasingly picky and targeting top-tier locations in larger deals, Enverus Intelligence Research (EIR) said in a report early this year.

The value of the deals also dropped in 2022—13% year over year—to $58 billion, transacted across a total of 160 M&As.    

“While deal values are down just about 20% from pre-pandemic averages, the volume of deals has collapsed to a nearly two-decade low as activity has been driven by large companies targeting the highest quality assets in billion-dollar-plus deals,” Enverus said.

Last year, larger firms dominated the mergers market in the U.S. shale patch and struck multibillion-dollar deals to secure inventory that was immediately accretive to cash flows. Large public companies now boast strengthened balance sheets and favorable stock valuations, which gives them the ability to snap up premium drilling locations. But smaller firms, with low equity valuations, have struggled to fund acquisitions of top-tier assets, Andrew Dittmar, director at Enverus Intelligence Research, said.  Related: Tanker Carrying Oil For Chevron Seized By Iran

M&A Activity To Accelerate 

This year, the M&A activity is expected to move into a higher gear as private equity looks for the exit while public companies look for additional top-tier acreage, analysts say. 

Several deals in the industry have already been announced this year, but the real merger talk on the market was triggered earlier this month with the rumors that ExxonMobil held early informal talks about potentially acquiring the largest pure-play shale producer, Pioneer Natural Resources. 

“The world needs more US oil, and the Permian has several thousand locations remaining that are viewed as high quality,” Pete Bowden, global head of industrial, energy and infrastructure banking at Jefferies Financial Group, told Bloomberg this week. 

“If you’re a major oil company, you have to think about getting that supply while it’s available,” Bowden added. 

High Cash Flows Set To Trigger More Deals 

Less than two months before the Exxon-Pioneer rumors surfaced, McKinsey & Company said in an analysis, “Historically high cash generation across the North American upstream industry could create the perfect market conditions for accelerated M&A activity for market leaders.” 

McKinsey expects free cash flows in the industry to remain high, with the 25 leading North American exploration and production companies generating FCF of between $70 billion and $90 billion in 2023 and between $50 billion and $70 billion for the following four years—even if oil prices drop to around $65-$70 per barrel in the medium term. 

Even after payments for capital expenditures, debt reduction, shareholder returns, and investments to reduce emissions, the leading 25 companies are likely to remain cash-flow positive in 2023 and beyond, McKinsey says. 

“The primary tool left in the corporate finance toolkit is deployment of cash through M&A,” the analysts added.  

“While our industry should be proud of recent performance, now is not the time to bask in the glow of success. As in the past, successful industry players will work tirelessly to define and deliver a strategy rooted in sound M&A investments—honing their evaluation skills and integration capabilities—to accelerate their future growth and performance.” 

Permian M&A Bonanza

Ovintiv’s recent acquisition of untapped oil and gas assets in the Permian from EnCap Investments for $4.3 billion “was the biggest Permian deal since ConocoPhillips bought Shell’s assets in September 2021 and kicked off 2Q23 M&A with a bang,” Andrew Dittmar, Director on the Enverus Intelligence team, wrote earlier this month.

The sale came amid an already strong market for private equity sellers from the end of last year. 

“Whether because of a lack of opportunities in maturing shale plays or a lack of capital, the portfolio of private equity E&Ps isn’t being replenished at nearly the pace M&A is drawing it down,” Dittmar said. 

“The result is a far more consolidated Permian Basin and other areas where the rich get richer as large companies with significant cash are in the best position to compete for deals.” 

The next step in the consolidation is deals among public companies. Reports of talks about a Pioneer Natural Resources acquisition by ExxonMobil “seems to point toward an industry that looks increasingly like it did before shale in the context of the biggest companies and majors holding the best, lowest-cost resource,” Dittmar noted.   

By Tsvetana Paraskova for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News