EIA: 2023 M&A Spurs Consolidation in US Energy Sector

By IndraStra Global News Team

Cover Image Attribute: Image by jpenrose from Pixabay

In 2023, the expenditure on mergers and acquisitions (M&A) by crude oil and natural gas exploration and production (E&P) companies surged to $234 billion, reaching the highest level in real 2023 dollars since 2012. This recent surge in dealmaking signals a return to the previous pattern of consolidation among oil companies in the United States, following a period of decline in transactions due to significant oil market fluctuations in 2020 and 2022.
M&A spending encompasses corporate M&A, where one company merges with or acquires another, and asset acquisitions, where one party purchases assets from another. Corporate M&A constituted 82% of the total announced spending, largely driven by two ongoing deals: ExxonMobil's planned acquisition of Pioneer Natural Resources for $64.5 billion and Chevron's proposed acquisition of Hess Corporation for $60 billion. These transactions represent the largest deals in real terms since Occidental Petroleum Corporation's acquisition of Anadarko Petroleum Corporation for $55 billion in 2019.

Data source: Evaluate Energy and U.S. Bureau of Labor Statistics (BLS) Note: This data excludes canceled deals and transactions between Saudi Aramco and the Saudi Public Investment Fund. It includes completed and in-progress deals. The real price is calculated using the Consumer Price Index from BLS.

Corporate M&A and asset acquisitions, such as acreage sales, appeal to both buyers and sellers. Buyers can acquire proven reserves instead of investing in exploration and development, potentially yielding more profitable assets. Companies may seek to diversify their portfolios or acquire geographically complementary acreage, leading to cost reductions and improved production efficiency. Sellers may view selling assets or merging with other companies as advantageous for shareholders or a strategy to emerge from bankruptcy proceedings and strengthen their balance sheets.
One consequence of this consolidation trend is the emergence of larger companies with more extensive portfolios of producing assets. For instance, Chevron currently stands as the largest producer of crude oil and natural gas liquids (NGL) in the United States, accounting for 5% of the country's total production, with an average output of just over 1.0 million barrels per day (b/d) in the third quarter of 2023 (3Q23). If Chevron's acquisition of Hess Corporation goes through, it could increase Chevron's share of U.S. production to 6% (over 1.2 million b/d), based on 3Q23 data.
Similarly, ExxonMobil, the fourth-largest producer of crude oil and NGL in the United States could potentially boost its production to nearly 7% of the country's total production (from around 750,000 b/d to 1.3 million b/d) if its acquisition of Pioneer Natural Resources is successful. Absent any other significant changes in production or asset ownership, recent M&A activity could position ExxonMobil as the largest producer of crude oil and NGL in the United States.

Data source: Evaluate Energy
ExxonMobil's objectives in acquiring Pioneer Natural Resources include expanding its presence in the Permian Basin located in West Texas, capitalizing on synergies from combining ExxonMobil's and Pioneer's adjacent land holdings and mitigating risk within its production portfolio by increasing domestic crude oil output, as per public statements. The merger of ExxonMobil's 570,000 net acres in the Delaware and Midland Basins with Pioneer's over 850,000 net acres in the Midland Basin is anticipated to yield approximately 16 billion barrels of oil equivalent (BOE) in reserves within the Permian Basin. The Permian Basin has been a key contributor to rising crude oil production in the United States in recent years and is expected to remain a significant source of production growth in the future.
According to public statements, Chevron's primary objective in acquiring Hess Corporation is to gain access to the Stabroek Block off the coast of Guyana, which is considered the largest oil discovery globally in the last decade, estimated to hold over 11 billion BOE of recoverable resources. Hess currently holds a 30% stake in the Stabroek Block, with ExxonMobil holding 45% and the China National Offshore Oil Corporation holding 25%. ExxonMobil has filed an arbitration claim contesting Chevron's acquisition of Hess's stake in the Stabroek Block, citing a right to first refusal. The resolution of this claim could impact the completion of the acquisition.
Other significant recent deals include:

• Diamondback Energy announced a merger with Endeavor Energy for a total transaction value of $26 billion, positioning the combined entity to become the third-largest producer of oil and natural gas in the Permian Basin.

• Occidental Petroleum Corporation announced the acquisition of CrownRock L.P. for a total cost of $12 billion. CrownRock's assets in the Midland Basin are expected to add 170,000 barrels of oil equivalent per day (BOE/d) of production in 2024.

• Chesapeake Energy announced a merger with Southwestern Energy for a total transaction value of $11.5 billion, potentially creating the largest natural gas producer in the United States.

• Chevron's acquisition of PDC Energy, Inc., for a total cost of $7.6 billion, enhanced its presence in the Denver-Julesburg Basin in Colorado.

• ExxonMobil's acquisition of Denbury, Inc., for a total cost of $4.9 billion, provided ExxonMobil with the largest CO2 pipeline network in the United States and 10 onshore sequestration sites for carbon capture and storage.

• APA Corporation announced the acquisition of Callon Petroleum Company for a total cost of $4.5 billion. APA Corporation and Callon Petroleum Company, operating primarily in the Permian Basin, produced 150,000 b/d and 81,000 b/d of crude oil and NGL in the third quarter of 2023.

With reporting by the U.S. Energy Information Administration

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