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Spent force: Is the upstream M&A wave over?

After hitting a record $258 billion last year, upstream merger and acquisition (M&A) activity continued its momentum at the start of this year. With $64 billion-worth of upstream deals announced in the first quarter of this year, deal value reached its highest first-quarter levels since 2019 and a near 145% increase compared to the opening quarter last year. Notably, deal value so far this year has already surpassed the total deal value of $69 billion recorded for the entire first half of 2023.

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

North America, and in particular the US, has emerged as the growth engine behind this robust activity, accounting for slightly over 83% of the total deal value in the first quarter of 2024, driven by ongoing US shale consolidation. The Permian Basin’s dominance within the shale sector continued, with the core shale patch accounting for more than $29 billion-worth of deals, representing around 63% of total shale-focused M&A activity in the US. Two major deals dominated the Permian scene – Diamondback Energy's acquisition of Midland Basin-focused Endeavor Energy for $26 billion, positioning it as the third-largest Permian producer, and APA Corporation's purchase of Callon Petroleum for $4.5 billion. However, with a limited number of opportunities available in the Permian coupled with high commodity prices, we expect increased M&A activity outside of the Permian. So far in this year’s second quarter, the majority of shale-focused M&A activity has taken place in the Eagle Ford (47%), Marcellus (25%) and Utica (12%), whereas the Permian has accounted for just 6% of total shale-focused M&A activity in the quarter.

Outside of North America, M&A activity has remained robust, reaching nearly $10.5 billion in this year’s first quarter. This activity was primarily dominated by majors as well as an increased overall appetite for gas resources. Notable deals included Shell’s divestment of its 30% stake in the SPDC joint venture in Nigeria to the Renaissance consortium for $2.4 billion that included nearly 520 million barrels of oil equivalent (boe) of gas resources, the formation of an Egypt-focused joint venture between BP and ADNOC that included 407 million boe of gas resources, Jera’s acquisition of a 15.1% stake in the Scarborough gas field in Australia for $1.4 billion that contained 316 million boe of gas resources, and TotalEnergies’ acquisition of OMV’s stake in the Sapura OMV joint venture for $903 million that contained more than 140 million boe of gas resources.

The increased M&A activity from majors also showcased their appetite for exploration opportunities, with TotalEnergies and Chevron placed among the top acquirers for exploration acreage during the first quarter. TotalEnergies secured access to exploration acreage in Africa, Asia and Australia, while Chevron secured more than 5,000 square kilometers of exploration acreage through its acquisition of a 60% operated stake in OFF-1 Block offshore Uruguay from Challenger Energy. This appetite among the peer group has gained further momentum, with ExxonMobil, Shell, TotalEnergies and Equinor reportedly emerging as potential buyers for a 40% stake in PEL 83 offshore Namibia where Galp Energia recently announced the Mopane discovery.

With more than $150 billion-worth of upstream assets on the market, M&A activity in 2024 is expected to remain robust, if not surpass the 2023 level. This is also substantiated by certain soft signals, such as ADNOC considering acquiring BP (while discussions did not materialize) as well as Woodside Energy and Santos considering a merger (discussions on which were scrapped earlier this year), reflecting companies’ continued appetite and cautious approach for significant transactions such as those struck by ExxonMobil and Chevron late last year.

Atul Raina, Vice President of Upstream M&A Research

Overall, North America is expected to continue driving this future M&A activity, with opportunities worth nearly $80 billion on the market, including nearly $41 billion-worth of non-Permian shale opportunities. Furthermore, portfolio rationalization plans from ExxonMobil, Chevron, Occidental Petroleum and Diamondback could also contribute to increased M&A levels in the short term. Having announced significant acquisitions recently, these companies are expected to part ways with non-core assets, which would create growth opportunities for regional exploration and production players.

To learn more on the topic, watch our on-demand webinar on Upstream M&A trends.

 

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