US Oil Players Prepare for M&A Spending Spree

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The oil industry is known for its boom-bust cycles. But now, some of oil’s biggest players are looking to eliminate the bust part of the equation and boom-and-grow.

After a year of record profits, many of the oil industry’s top companies are turning around and scouring for deals to spend their cash on, according to a new report in the Financial Times. The looming dealmaking frenzy would put an end to a protracted dry spell, even if it does come at a time of widespread fears that some of the best oil fields are starting to run dry.

There’s (Not as Much) Oil in Them Hills

Altogether, titans Exxon, Chevron, Shell, BP, and TotalEnergies scored nearly $200 billion in profits last year, roughly the size of Greece’s economy. Meanwhile, US shale producers generated over $150 billion in free cash flow, an all-time record for the closely watched metric, according to consultancy group Rystad Energy. That’s the boom. Now here comes the bust the industry is so keen to avoid with deft dealmaking. Rystad projects that number to contract to $120 billion this year, and producers fear that prime acreage — particularly in the prolific Permian Basin and Eagle Ford Basin — is not as bountiful as it once was.

But those fields remain highly fragmented, sliced up and shared by major companies, single-rig independent drillers, and everything in between. The big players, who paid off billions in debt last year, are primed to buy smaller operations. The small fish, meanwhile, are looking to sell high before rising interest rates cut off access to equity and debt markets. “[Major producers are] out there shopping for more inventory. And we’re back in the business of selling Permian businesses with prime locations to sophisticated parties at real valuations,” Pete Bowden, global head of energy banking at Jefferies, told the FT.

In other words, both buyers and sellers are ready for a wave of consolidation — and it’s about time:

  • Just $58 billion worth of M&A deals were completed by US oil and gas companies last year, according to energy technology firm Enverus. That marked a 13% decline from 2021, a nearly 20% decline from pre-pandemic norms, as well as the lowest volume of activity since 2005.
  • After a wildly volatile past couple of years, oil prices are finally stabilizing to around $80 per barrel — making it much easier for buyers and sellers to see eye to eye when settling on a final sale price.

“There’s a good match with the needs of buyers and the needs of sellers right now,” Enverus analyst Andrew Dittmar told the FT. “You just need a little co-operation on price to get the deals done.”.

Gassed Up: The gas industry, meanwhile, isn’t in the mood. Natural gas prices are way depressed compared to 2022 levels. Meanwhile, an all-important verdict from the FTC’s review of THQ Appalachia’s $5 billion buyout of EQT is still in the making. In the meantime, major gas firms have no choice when it comes to dealmaking but to… hit the brakes.