US Upstream M&A Sets $192 Billion Record for 2023

At more than $140 billion, M&A market activity in the fourth quarter delivered the best showing of the year.

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A trio of blockbuster deals in the fourth quarter vaulted the mergers and acquisitions (M&A) value for 2023 to a record $192 billion, according to Enverus Intelligence Research (EIR) data.

The three pending deals – ExxonMobil’s bid for Pioneer Natural Resources, Chevron’s offer for Hess, and Occidental Petroleum’s quest for CrownRock—brought deal values to a record-setting $144 billion in the fourth quarter.

“Oil and gas is undergoing a historic consolidation wave comparable to what occurred in the late 1990s and early 2000s, giving rise to the modern supermajors,” said Andrew Dittmar, senior vice president at Enverus.

“After a decade of lowered investment in exploration and with the major US shale plays largely defined, M&A has become the preferred tool to replace declining reserves and secure longevity in these companies’ profitable upstream businesses. For the best-quality resource, there are also now more buyers than sellers, driving prices upward,” he said.

EIR said the Permian Basin stands “well atop the heap for remaining resources, offering both the most high-quality remaining drilling opportunities and the greatest potential for resource expansion from the prolific region’s stacked resource benches.”

M&A activity in the Permian for the year closed at $103 billion transacted, including ExxonMobil’s purchase of Pioneer for $65 billion and Occidental’s purchase of private CrownRock for $12 billion.

“The Permian was a juggernaut for deals in 2023, both for private sales and corporate M&A,” said Dittmar. “Buyers increasingly showed a willingness to pay whatever it took to boost their footprint in this critical play, and prices for future drilling inventory climbed to new highs.”

However, he noted that while the buyer interest is still there, it is unlikely to see an encore in 2024 because the available list of attractive takeout targets has grown short.

“At the top of that reduced target list is privately held Endeavor Energy Resources, which has an excellent chance of generating the largest transaction of 2024,” he said.

With the Permian becoming increasingly consolidated and few other US plays offering the breadth of undeveloped inventory, EIR suggests that buyers may look outside the US for acquisition opportunities. For example, according to EIR, Chevron’s purchase of Hess for $53 billion was largely for exposure to Guyana.

The analytics firm, however, added that attractive international acquisition opportunities are also more challenging.

“Canada stands out for US companies as offering a large resource base in a developed and stable country. The Montney, which offers almost 20 years of high-quality drilling inventory at current development rates, will likely get some close looks from US companies concerned about the scale and quality of inventory left to buy at home,” the firm said.

While the Permian secured the top spot for megadeals, with average deal size growing to almost $4 billion, and looking just at announced deals of at least $100 million, 2024 may return to a higher flow of smaller, asset-sized transactions across a wider distribution of plays, EIR said.

“Bigtime corporate M&A naturally leads to portfolio pruning, with Occidental as one example by announcing it was planning to shed from $4.5 to $6.0 billion of assets, mostly from its domestic portfolio,” said Dittmar.

“That should be a welcome development for some of the smaller public E&Ps plus private capital that has been priced out or lacked the scale to compete in the strategic core Permian deals. Among the plays likely to see an uptick in 2024 deals are the SCOOP/STACK in Oklahoma, Eagle Ford in Texas, and North Dakota’s Bakken. These plays had just a combined $11 billion of deals in 2023,” he said.

The game has changed for private-equity firms, according to EIR. The pace of private capital being raised and deployed has slowed.

“Rather than buying promising exploratory acreage and hoping to prove it up before selling to a public operator, the firms will likely be looking to buy relatively developed assets cheaply and generate dividends for their private investors,” EIR said.

Upstream M&A in 2023 was overwhelmingly focused on oil, with $186 billion in deals targeting oil vs. just $6 billion in gas acquisitions. Tokyo Gas purchased Rockcliff Energy in Haynesville Shale for $2.7 billion, announced in December 2023.

Total gas M&A for 2023 has been topped in 2024 with Chesapeake Energy merging with gas peer Southwestern Energy for nearly $12 billion, including Southwestern’s debt.

“There will likely be increasing interest in gas assets as the long-awaited US LNG ramp nears, with the US slated to add 10 Bcf/D of LNG export capacity over the next 36 months,” EIR said. “That should eventually offer relief for producers from low natural gas prices, although they will likely need to be patient. With gas storage filling and production still strong, gas prices through most of 2024 are likely to be as low or lower than the challenged 2023 market."