Even now, more than three years after the start of the oil and gas industry’s biggest consolidation in a quarter-century, hardly a month goes by without another major M&A announcement. This week, Civitas Resources said it will acquire acreage and production in the Permian from Vencer Energy for $2.1 billion. The main drivers of these deals, many of which are valued in the billions of dollars, are clear. Among other things, E&Ps seek scale and the economies of scale that are achieved. They have also come to believe that it makes more sense to grow production through mergers and acquisitions than through aggressive capital spending. And, for some producers not yet involved in the important Permian, the acquisition of an even smaller E&P provides a starting point to build on. In today’s RBN blog, we discuss the highlights of our new release Detailed report in the last 12 months of M&A activity in the US oil zone.
So far, the 2020s have been a period of almost unprecedented consolidation within the oil and gas industry. Not since the late 1990s has US M&A activity among producers been this frenetic. Then a slump in crude oil prices spurred big deals that helped form many of today’s big E&P majors and independents: Exxon teamed up with Mobil, BP with Amoco and ARCO, Chevron with Texaco, Anadarko with Union Pacific and Kerr McGee, ConocoPhillips. with Burlington Resources, and Devon with Mitchell Energy and Ocean Energy.
Another M&A tsunami could have come with the fall in oil prices in 2014-15. After all, many producers had spent massive amounts of cash flow during the early years of the Shale era to build acreage inventories in multiple unconventional plays. But the big wave didn’t happen. Instead, most E&P turned inward, shedding non-core assets to concentrate on core plays.
The latest M&A boom
Then came the early 2020s – who in the hydrocarbon space can forget that? Within weeks, OPEC+ collapsed, the onset of the COVID lockdowns and other factors pushed the US E&P sector to the brink of insolvency. Crude oil prices had fallen to $20/bbl, a third of the level at the start of that fateful year, and producers had gone into survival mode, cutting investment, canceling oil projects infrastructures and contemplating new and worse scenarios.
