Upstream M&A activity sets record in fourth quarter

A Hess Corp. well site in the Bakken formation. Chevron announced an all-stock deal to buy Hess Corp. for US$53 billion in the fourth quarter 2023. The deal helped drive a surge of mergers in acquisitions in the quarter that set a record, according to Enverus Intelligence Research (EIR). (Image: Hess Corp.)

The fourth quarter of 2023 saw US$144 billion in upstream merger & acquisition (M&A) activity, the largest quarter ever tracked by Enverus Intelligence Research (EIR), a subsidiary of Enverus.

According to EIR, the fourth quarter pushed full-year 2023 value to more than US$190 billion, also setting a record.

Driving the surge in value were two historic deals: ExxonMobil’s US$65 billion acquisition of Pioneer Natural Resources in the third-largest upstream deal ever by enterprise value and Chevron purchasing Hess for US$60 billion in the fourth largest ever, EIR said in a news release.

“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 U.S. 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.”

In 2023, upstream M&A was overwhelmingly focused on oil, with US$186 billion in deals targeting crude compared to just US$6 billion in gas-centric acquisitions. The largest gas deal wasn’t announced until nearly the end of the year when Tokyo Gas purchased Rockcliff Energy in the Haynesville for US$2.7 billion in December 2023. Last year’s gas M&A total has already been topped in 2024 with Chesapeake Energy merging with gas peer Southwestern Energy for nearly US$12 billion including Southwestern’s debt. There is likely to be increasing interest in gas assets as the long-awaited U.S. LNG ramp nears with the U.S. slated to add 10 Bcf/d of LNG export capacity over the next 36 months. 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.

The Permian dominated M&A activity in 2023 with US$103 billion transacted. That included a buy-in from Exxon as it made the Permian a cornerstone of its global portfolio with the $65 billion Pioneer purchase. Occidental also increased its commitment to the Permian with the purchase of private CrownRock for $12 billion in December 2023.

“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. While the buyer interest is still there, we are 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.”

EIA said that while 2023 was the year of the Permian mega-deal with average deals size growing to almost US$4 billion, looking just at announced deals of at least US$100 million, 2024 may return to a higher flow of smaller, asset sized transactions across a wider distribution of plays.

Private capital is still being raised and deployed, albeit at a slower pace than previous cycles, and would likely be interested in these non-core assets if the price was right. There have been about 20 new commitments announced by private equity firms in the last two years, excluding groups investing in minerals and royalties. However, the game has changed for these firms. 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.