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Majors are emerging as net upstream acquirers so far this year, bucking the trend from the last two years when the peers – comprising ExxonMobil, Shell, BP, Eni, TotalEnergies and Chevron – divested more upstream assets than they acquired. The group has acquired upstream assets worth nearly $19.5 billion so far this year, while divesting assets worth $7.5 billion, bringing net acquisitions to nearly $12 billion. This is higher than their near $9 billion-worth of net acquisitions in 2020, which is when the majors last emerged as net buyers and would appear to be in contrast with the group’s strategy of divesting upstream assets to embrace the energy transition. The group accounted for net divestments of $15 billion in 2019, $25 billion in 2021 and $13 billion last year.

Read our special insight from Atul Raina, VP Upstream M&A Research at Rystad Energy.

A noteworthy observation:

As majors ‘transition’ to net upstream acquirers in 2023, do emissions play a role in their M&A strategies?

While majors have stayed the course on divesting mature upstream assets and have used asset sales as one of the key tools to reduce emissions, the acquisitions so far this year also highlight their cautious approach while pursuing mega upstream deals. In the largest acquisition by a major this year, Chevron bought PDC Energy for $7.6 billion in May, with PDC’s assets estimated to have an emissions intensity of around 9 kilograms of carbon dioxide (CO2) per boe – representing a step further in Chevron’s aim to reduce its CO2 emissions intensity to 24 kilograms of CO2 per boe by 2028. ExxonMobil also acquired carbon capture, utilization and storage-focused Denbury for $4.9 billion in an all-stock deal and as a result secured access to the largest owned and operated CO2 pipeline network in a major industrial area in the US. Similarly, Eni and Vaar Energi’s acquisition of almost all of Neptune Energy’s assets for $4.9 billion supported Eni’s target of having a 60% gas mix by 2030 and brought in 5 million to 8 million tonnes per annum (tpa) of CO2 storage potential, compared with Eni’s target of storing 30 million tpa of carbon volume by 2030.

This string of mega acquisitions by majors could be catapulted to a peak not seen since 2015 if ExxonMobil’s rumored potential acquisition of Pioneer Natural Resources materializes. From an emissions standpoint, the potential acquisition would likely result in a reduction in ExxonMobil’s direct upstream emissions intensity, given Pioneer’s emissions intensity in 2021 was lower than that of the major, with a difference of approximately 2 kilograms of CO2-equivalent per boe.

As expected, a similar emission-cautious approach is seen in the majors’ divestment activity this year, highlighted by TotalEnergies’ sale of its Canadian oilsands operations to ConocoPhillips and Suncor Energy for around $4.1 billion and Chevron’s rumored decision to divest its upstream assets in Congo-Brazzaville.

While majors are transitioning to net upstream acquirers in 2023, emissions intensity is playing an important role in their merger and acquisition (M&A) strategies now more than ever. According to Rystad Energy’s Upstream M&A solution, the average emissions intensity of the majors’ acquisitions has fallen by nearly 42% from 24 kilograms of CO2 per boe in 2019 to 14 kilograms in 2023. Simultaneously, the average intensity of their divestitures has increased by a staggering 80% from 15 kilograms of CO2 per boe in 2019 to 27 kilograms so far in 2023. Eni’s recent sale of its onshore Nigerian assets to Oando for an estimated $500 million and non-core assets in Congo-Brazzaville to Pereneco for $300 million highlight the increased importance of this new pillar in majors’ M&A strategies. These assets are estimated to have an emissions intensity of 30 kilograms and 54 kilograms of CO2 per boe, respectively – significantly lower than the 11 kilograms of CO2 per boe of emissions intensity for Neptune’s upstream assets that Eni acquired.

This year marks a shift in majors’ M&A strategies as they pivot towards net upstream acquisitions. However, with a keen focus on reducing overall emissions intensity, this pivot highlights the peer group’s commitment to balancing the need for energy security with the need to embrace the energy transition.