The Era of the Mega-merger

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business deals

In recent months, there has been a major shift in the oil and gas industry due to the merger of a multitude of U.S. fossil fuel companies to establish bigger, more powerful players. As several oil majors acquire smaller firms, the absorption of their portfolios is putting resource power in the hands of just a few companies. The era of the megamerger is providing an alternative outlook for oil and gas, with companies joining forces to establish a strong foothold in the U.S. fossil fuels industry for years to come. 

The Last Year of Megamergers

Over the last year, a wide range of oil and gas firms have undergone mergers. Oil majors, such as Chevron, Exxon and Occidental, have acquired smaller fossil fuel companies to increase their production capacity both at home and abroad. 

Last October, Chevron acquired Hess for $53 billion in stock, giving Chevron a 30% stake in Guyana’s Stabroek Block and a stake in its Bakken shale operations in North Dakota, as well as boosting oil production by around 386,000 bpd. This merger will allow Chevron to diversify its operations beyond the U.S. and give the company a place in the new era of “lower-carbon” oil production in the Caribbean. 

Shortly after, Exxon Mobil announced that it had bought out Pioneer Natural Resources for $59.5 billion in an all-stock deal, marking the oil major’s biggest merger since its acquisition of Mobil. This move helped Exxon to expand its U.S. oil production, adding 711,000 bpd to its portfolio and doubling its crude output in the Permian Basin. 

In December, Occidental Petroleum agreed to purchase the U.S. shale oil producer CrownRock in a $12 billion cash-and-stock deal, including debt, to expand its domestic operations. The CEO of Occidental, Vicki Hollub, stated, “We found CrownRock to be a strategic fit… Where we are looking at oil prices being long term, that it would help us in (oil) downturns.” The acquisition is expected to be completed by August this year. 

In May this year, Houston-based ConocoPhillips announced plans to purchase its Texas rival, Marathon Oil Corp, in a $22.5 billion all-stock deal, which includes $5.4 billion in debt. This move will increase ConocoPhillips’s domestic, onshore oil output, adding operations in the Bakken and Eagle Ford shales and Permian Basin, as well as Montney Shale in Western Canada and the Anadarko Basin of Oklahoma.

This Year’s Outlook

In total, $250 billion worth of consolidation deals took place in 2023, with more expected to be seen this year. The total value of deals in January and February alone was $55 billion, which equates to around double the amount in the same period in 2023. Mergers involving U.S. shale companies accounted for 80% of the value. 

However, it seems that not every company has been successful in taking a piece of the megamerger pie. The U.S. oil and gas producer Devon Energy lost bids to acquire at least three fossil fuel companies in the last year as its shares were reportedly not accepted as acquisition currency. Devon had its eyes on Marathon, CrownRock and Enerplus but failed to close any of the deals. Higher drilling costs and production challenges have made Devon stock less attractive to companies looking to undergo a merger. It is uncertain whether Devon will look to other companies, such as Permian Resources, Matador Resources, and privately-owned Mewbourne Oil, to expand its Delaware basin portfolio or if the oil major will focus on its current operations.

Bryce Erickson, the leader of valuation consultancy Mercer Capital’s oil and gas group, predicted that Devon would make an acquisition sooner or later, given the current sentiment in the industry. Erickson stated, “Real or imagined, from my chair, there is a sort of feeding frenzy – it’s acquire or be acquired.” 

Meanwhile, Matthew Bey, senior global analyst at the geopolitical intelligence firm Rane, explained, “Now we are starting to see a lot of larger players trying to gain as many assets as they can, in order to take advantage of economies of scale.” Bey added, “I think that all of them are trying to grow bigger in order to at least increase their own market share, increase their own size, increase their own revenue. But I’m not sure how much of it is solely about the idea of trying to outman one another.”

As the major deals of 2023 are expected to be completed this year, it is uncertain whether more will follow. However, given the current investment sentiment in the oil and gas industry, it is likely that more mergers will take place this year and next as companies race to expand their domestic and foreign assets and establish a strong position in the U.S. fossil fuel industry.

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Felicity Bradstock is a freelance writer specializing in Energy and Industry. She has a Master’s in International Development from the University of Birmingham, UK, and is now based in Mexico City.

 

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