2023 A Slow Year For Big Oil Deals, But That Could Change

The first quarter of 2023 presented relatively slim pickings where merger and acquisitions (M&A) in the oil and gas upstream segment were concerned, per a new report from Enverus Intelligence Research (EIR), a subsidiary of Enverus. All told for the year’s first three months, EIR was able to total up just $8.6 billion in M&A value among 16 significant upstream transactions.

A Focus on the Eagle Ford Shale

One interesting aspect is that deals focused on the Eagle Ford Shale accounted for more than $5 billion in total value, overshadowing the Permian Basin, which has been the major focus area for upstream activity for the better part of a decade. “It was the best quarter for the Eagle Ford in almost ten years,” Andrew Dittmar, Director at Enverus, told me in an interview. “One of the top three, certainly, since 2010.”

When asked how his analysts account for this, Dittmar says, “the Eagle Ford is a good place for people to be shopping for deals where you want to buy essentially for the value of the existing production,” and that is what most acquiring companies are looking for in the current market environment, with softening prices and uncertain economic conditions.

Two of the larger Eagle Ford transactions were driven by the exit from the play by Chesapeake Energy, which has decided to focus more on its natural gas positions in the Haynesville Shale and Appalachian Basin. The Oklahoma City-based producer sold one position to Wildfire Energy and a second to British multi-national INEOS, with both transactions coming in at around $1.4 billion. Dittmar classifies the third and biggest Eagle Ford deal of the quarter as a “merger of equals” between Baytex and Ranger Oil, with Canada-based Baytex becoming the surviving company.

While it may seem an odd time for Chesapeake to be pursuing a pure natural gas play strategy given the current state of domestic gas prices, Dittmar points out the decision was made in 2022 when gas prices were much higher in the midst of Europe’s energy crisis. He also points to the positive outlook for domestic producers being able to gain access to international markets as the U.S. LNG export sector’s capacity grows in the coming years.

“I think if you look multi-years out, that’s where U.S. LNG is going to come online,” he says. “Eventually gas is going to transition towards being more of a global commodity like oil. Europe obviously needs U.S. gas with the Russian supply cut off, and these transactions simplify the portfolio. That Eagle Ford asset didn’t really have a place in their go forward plan.”

Expect a Return to the Permian Basin

In its release, EIR says that companies will need to turn to the Permian Basin in order to acquire significant undeveloped land in addition to the value of current production. Matador Resources was able to secure such a deal in Q1, paying $1.6 billion for the Delaware Basin assets of EnCap’s Advance Energy Partners. Diamondback Energy
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, which has been quite active in the M&A space as an acquirer in recent years, was also able to bolt on some additional existing production and undeveloped properties in a smaller deal valued at $439 million.

I asked Dittmar about the fact that rumors about a possible merger between ExxonMobil
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and Pioneer Natural Resources
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had circulated again in April, adding that crude prices had dropped significantly since then. Does that have a dampening effect on the potential for larger deals like that?

“Yeah, it’s not great for big deals or small deals,” Dittmar says. “That movement down, volatility downside is bad for M&A. That’s just a really tough combination to work around in the market. I think there probably are some big deals that potentially could have gotten done at a more stable or higher price and small ones that are going to be delayed by this movement down.” He went on to point out that some of the speculation regarding an ExxonMobil/Pioneer deal was likely based on the fact that Pioneer CEO Scott Sheffield has announced he will be retiring at the end of 2023.

Noting that oil and gas is always a cyclical business that ebbs and flows with a variety of market factors, Dittmar speculates that potential buyers and sellers tend to look to cut deals when prices are in a sort of sweet spot at which “sellers feel that they’re getting a good price on their assets and not selling at the bottom of the market, and buyers are feeling maybe there’s still some more upside to be had or they’re not at least buying at a peak.”

The Bottom Line

The comparative dearth of action indicates that neither class of potential dealmakers believes current market conditions present a prime time to strike on a deal. But that could change at any time, and it is not as if the bigger companies don’t have money to spend.

Asked about the fact that both ExxonMobil and Chevron
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, two big Permian players, appear to be sitting on big stores of cash, Dittmar says, “the Permian looks awfully attractive from a global perspective, and it is going to be a centerpiece for the Exxons and the Chevrons of the world for a long time still to come. And they absolutely want to consolidate those few last big opportunities that are left.”

Things could get interesting in the months to come, so stay tuned.