Mergers and acquisitions in the U.S. upstream oil and gas industry hit $105 billion in 2024, the third-highest annual total ever, energy analytics firm Enverus has revealed. However, last year’s tab came in well below a whopping $192 billion worth of tie-ups completed in 2023, which included the $60 billion acquisition of Pioneer Natural Resources by Exxon Mobil Corp. (NYSE:XOM).
Earlier, Enverus predicted that mergers in the U.S. upstream sector are set to decline in the current year. Deal-making in the U.S. shale patch hit high gear in the aftermath of Russia’s war in Ukraine with the U.S. energy sector leveraging high oil and stock prices; however, the wave of consolidations has emptied pocketbooks and left fewer companies on offer. Still, the energy analytics firm has pointed out that the need for scale will motivate small and mid-cap E&Ps (upstream companies) to explore mergers, despite deal sizes potentially falling and the break-evens of acquired inventory rising.
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Further, falling profits are likely to discourage mergers at a time when oil and gas companies are keen to please shareholders. Over the past five years, oil and gas companies have been returning a bigger chunk of their profits to shareholders in the form of dividends and share buybacks. With oil prices declining over the past two years, these companies have resorted to borrowing more to keep their shareholders happy. Indeed, Bloomberg reported in late October that four of the world’s five oil “supermajors” saw fit to borrow $15 billion to fund share buybacks between July and September. According to a Bloomberg analysis, ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX), TotalEnergies (NYSE:TTE), and BP (NYSE:BP) wouldn’t have enough cash on hand to cover the dividends and share buybacks their investors are demanding, let alone increase their capital expenditure to drill more.
