Enverus: US Oil and Gas M&A Falls 13% in 2022 to $58 Billion

M&A market activity in the fourth quarter fell from the third-quarter high to $13 billion.

Source: Occidental Petroleum

Mergers and acquisition (M&A) activity in the US oil and gas sector slowed significantly in 2022, falling 13% on a year-over-year basis and falling $3 billion from a third-quarter high.

A new report from Enverus Intelligence Research said deal count plunged to its lowest level since 2005, with US upstream M&A activity delivering $58 billion transacted in 160 deals, including the $13 billion from 26 deals in the fourth quarter.

Overall, the average deal value fell by only 20%, while the volume of deals collapsed to a nearly 2-decade low.

“Large-cap public companies like Devon Energy, Diamondback Energy, and Marathon Oil dominated deal activity in the back half of 2022,” said Andrew Dittmar, director at Enverus Intelligence Research. “These buyers have the balance sheet strength and favorable stock valuations to take advantage of large, high-quality offerings from private sellers.

“Critically, they can strike deals that are both accretive to current cash flow and extend their runway of drilling locations. For smaller companies, which are still having their equity value discounted, it is challenging to thread the needle of buying assets at accretive multiples and being able to pay for inventory,” he said.

The lower number of deals during 2022 was, according to Enverus, due to large companies targeting higher-quality assets in billion-dollar-plus deals. The two largest deals in the fourth quarter were Diamondback’s Midland Basin acquisitions of Firebird Energyand Lario Oil & Gas for a combined $3.1 billion. The deals added nearly 500 new drilling location that are highly economic in the current oil price environment, according to Enverus.

Marathon, while well positioned with about 10 years’ worth of drilling locations economic down to $45/bbl, added another 550 locations to its portfolio with its purchase of private Ensign Natural Resources in the Eagle Ford. It was the play’s largest deal since Chesapeake purchased WildHorse Resource Development for nearly $4 billion in late-2018, the report noted.

The go-private transaction by the Hamm family to acquire the public portion of Continental Resources for more than $5 billion takes the title as the most interesting type of corporate M&A. It is a unique situation because the family already owned most of the company. Enverus noted that there are a few other companies such as Comstock Resources, largely owned by Jerry Jones, or by Berkshire Hathaway seeking to consolidate Occidental Petroleum as a private investment.

Overall, the need for public companies to secure inventory is likely to keep the M&A market active in 2023.

“The challenge for deals, as is often the case in this industry, will be bridging the bid-ask spread and navigating commodity price volatility,” said Dittmar. “Oil prices are likely to be steady or rising during the first half of the year while gas struggles, meaning more oil deals and fewer for gas to start 2023. However, we could see interest in buying gas assets mid-year to take advantage of low prices ahead of a US LNG export ramp that will eventually drive gas higher.”