Merger and acquisition activity in the U.S. oil and gas industry is close to reaching the record level of dealmaking booked last year and possibly exceeding it.
The latest insight into M&A in oil and gas comes from Rystad Energy, as quoted by Reuters, which said that dealmaking has hit $100 billion, and there's another $46 billion up for grabs. Last year's M&A total hit an all-time high of $155 billion.
The figures support a view that the U.S. oil and gas space remains a very busy one with regard to consolidation after earlier this year, Enverus also predicted the industry was in for another strong year in dealmaking. The second quarter saw $30.2 billion worth of deals, noting that consolidation activity was already spilling over into other shale plays besides the Permian.
Rystad Energy made the same observation in its new report. The Permian has been the primary focus of dealmakers, but now they are getting interested in other assets—ones in places such as the Eagle Ford and the Uinta Basin, per Enverus. Now, Rystad also says that more deals are taking place outside the Permian, with the star shale play being the location of 46% of all deals so far this year, versus 92% of the deals made last year in the space.
The Bakken shale saw a sizeable increase in deals this year, accounting for 12% of the total, Rystad Energy said, while last year's dealmaking there was virtually non-existent. The Uinta basin in Utah is also seeing action. In fact, it was the location of a major deal worth $2 billion, in which SM Energy acquired a local driller, XCL Resources.
"We would love to add that kind of asset in the Permian, but getting something of that size anywhere near that price is really hard right now," the chief financial officer of SM Energy said this week, as quoted by Reuters.
Indeed, assets for sale in the Permian are vanishing fast, and prices are higher than in other basins, with the Permian being the best performer in the shale patch. So, prospective buyers are turning elsewhere to expand their footprint in an increasingly competitive space. Besides the Bakken shale, the Eagle Ford and the Marcellus shale also accounted for sizable chunks of the total deals. The share of the Eagle Ford was 13%, and that of the Marcellus shale was 14%.
The pace of dealmaking will apparently remain fast through the rest of the year, with more large deals still possible. Since the start of the year, there have been 12 deals, each of $1 billion or more, according to the Enverus update from August. That suggested that the total for the year could exceed last year's 19 deals of a billion dollars or more.
As for locations, a separate new report by Rystad Energy suggested these may come to be decided on the basis of factors other than resource availability and price, namely emissions. The consultancy said in its report that despite the push for an energy transition, oil and gas were likely to remain the dominant source of energy. Yet it also said the industry would be under growing pressure to decarbonize, prioritizing its emissions footprint.
"As investors and governments intensify their focus on carbon-reduction goals, identifying basins that can help lower the overall emissions impact is becoming increasingly important," Rystad said, adding it had coined a new term for such basins: premium energy basins. In the U.S., the premium energy basin is the deepwater Gulf of Mexico, Rystad said, adding that the basin also had a significant carbon storage potential thanks to the number of abandoned oil wells.
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By Irina Slav for Oilprice.com
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