US shale industry’s $200bn dealmaking wave redraws energy landscape

Dealmaking in US oil and gas has surged to almost $200bn in the past year as the biggest producers compete to swallow up rivals in a race for scale that has redrawn the national energy landscape.

But as the country’s best drilling acreage is snapped up, companies are casting a wider net and looking beyond the most sought-after oilfields for acquisitions that will bolster their ability to pump hydrocarbons in the years ahead.

“We are in the midst of a consolidation wave and I don’t think it is over yet,” said Jon Hughes, chief executive of Petrie Partners, a boutique investment banking firm that advised on Pioneer Natural Resources’ $60bn sale to ExxonMobil.

“We’ve gone from about 65 to 41 publicly traded oil and gas companies in the US in less than five years.”

Since last July companies including Exxon, Chevron and Occidental Petroleum have announced $194bn worth of deals across the US shale patch, according to consultancy Rystad Energy. This is almost triple the amount in the previous 12-month period. The latest came this week when ConocoPhillips announced a $22.5bn acquisition of Marathon Oil, after talks between the companies were reported by Financial Times.

At least another $62bn of assets are known to be on the market, according to Rystad.

Companies including Permian Resources, Matador Resources, Chord Energy and Civitas Resources are in the sights of bigger players, said Michael Alfaro of Gallo Partners, a hedge fund focusing on industrials and energy. He also pointed to privately held companies including Double Eagle and Mewbourne Oil as attractive prospects.

Houston-based EOG, valued at $70bn, and Oklahoma-based Devon Energy, valued at $30bn, are the biggest publicly listed US players yet to strike in the recent wave. Devon risks becoming a target for other players if it fails to bulk up, analysts said. The company had held talks with Marathon, but was beaten to the punch by Conoco, said people familiar with the deal.

EOG and Devon did not respond to requests for comment on their plans.

The dealmaking burst has entered a new phase. With much of the best acreage spoken for in the prolific Permian Basin of Texas and New Mexico — the engine room of the country’s oil industry — companies are looking further afield. Consolidation has left almost two-thirds of the field’s shale oil in the hands of just six companies, Rystad estimated.

Conoco’s deal for Marathon signalled a strategic shift in the M&A wave. Marathon holds some Permian acreage but its assets are also scattered across less well-known basins such as Texas’s Eagle Ford, North Dakota’s Bakken and Oklahoma’s Scoop Stack. The deal was struck after Conoco lost out to rival Diamondback Energy in its attempt to buy Endeavor Energy Resources, one of the prized targets in the Permian.

“With limited remaining opportunities in the Permian, increased competition could have pushed ConocoPhillips to look for sizeable options elsewhere,” said Palash Ravi, senior analyst at Rystad. “Consolidation in the US shale is most likely to shift outside of the Permian.”

The recent dealmaking flurry began with Exxon’s $60bn bid for Pioneer, the biggest oil producer in Texas, last October. That was quickly followed by Chevron, Exxon’s biggest rival, announcing a contentious $53bn deal for Hess.

Others soon followed as the biggest oil companies competed to acquire smaller rivals: Occidental Petroleum beat Diamondback to a $12bn deal for CrownRock. Diamondback later muscled out Conoco with its $26bn deal for Endeavor. Conoco’s $22bn acquisition of Marathon on Wednesday came after weeks of vying with Devon Energy. 

Tensions have bubbled out into the open, with Exxon and Chevron sparring over the latter’s acquisition of Hess. Exxon argues it has a right of first refusal over any sale of Hess’s stake in a lucrative project off the coast of Guyana and has filed an arbitration case that could sink the biggest deal in Chevron’s history.

The dealmaking binge has also attracted the attention of antitrust regulators. The Federal Trade Commission has not yet sought to block a deal but it has launched investigations into many of the biggest acquisitions.

Under Lina Khan, FTC chair, six out of eight oil and gas deals announced with price tags over $5bn have received second requests for information from the regulator, according to Petrie Partners. That is up from one in 27 over a period of almost two decades previously.

Of the investigations launched over the past year, the regulator has cleared one deal: Exxon’s $60bn takeover of Pioneer. But its approval was contingent on Scott Sheffield, the former Pioneer chief executive, being banned from serving on Exxon’s board, on the basis that he had allegedly colluded with Opec to curtail oil supplies.

Sheffield, who called the allegations “wild and unbelievable”, said the FTC’s antagonistic stance — and its ability to trawl through past communications in discovery — could prompt executives to think twice about striking deals. 

“I’m very concerned that attacking past statements like this will have a chilling effect on the ability and willingness of business leaders to express their views publicly,” he told the FT.

The dealmaking spree has transformed the US oil and gas landscape from one made up of thousands of small-scale operators to one where a few big players hold sway.

Conoco’s latest deal will give it an output larger than supermajor TotalEnergies and on par with BP, according to consultancy Wood Mackenzie. Conoco, Exxon and Chevron will together account for 25 per cent of remaining US shale oil resources, Rystad calculates.

While many of the biggest deals have been done, industry executives say plenty more consolidation is yet to come.

“The horse is out of the barn on M&A and we expect the arms race for scale to continue,” said Mark Viviano, portfolio manager at private equity group Kimmeridge.