Consolidation wave reshapes US oil and gas sector

Company News

by Glenn Dyer


Dealmaking in the US oil and gas sector has soared to nearly $200 billion over the past year as major producers race to acquire rivals and expand their scale, reshaping the national energy landscape.

With the prime drilling acreage quickly being claimed, companies are now broadening their horizons, seeking acquisitions beyond the most coveted oilfields to ensure their ability to produce hydrocarbons in the future.

“We are in the midst of a consolidation wave, and I don’t think it is over yet,” said Jon Hughes, CEO of Petrie Partners, a boutique investment banking firm that advised on Pioneer Natural Resources’ $60 billion 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, major players like Exxon, Chevron, and Occidental Petroleum have announced deals worth $194 billion across the US shale patch, according to Rystad Energy. This figure is nearly triple that of the previous 12 months. The latest deal saw ConocoPhillips announce a $22.5 billion acquisition of Marathon Oil.

At least another $62 billion in assets are currently on the market, Rystad reports. Companies such as Permian Resources, Matador Resources, Chord Energy, and Civitas Resources are targets for larger players, according to Michael Alfaro of Gallo Partners, a hedge fund focused on industrials and energy. Private companies like Double Eagle and Mewbourne Oil are also seen as attractive prospects.

EOG, based in Houston and valued at $70 billion, along with Oklahoma-based Devon Energy, valued at $30 billion, are the largest publicly listed US companies yet to make a move in the recent consolidation wave. Analysts suggest Devon risks becoming a target if it doesn’t expand, having lost out to Conoco in a bid for Marathon.

The current phase of dealmaking marks a shift. With much of the prime acreage in the Permian Basin of Texas and New Mexico now owned by a few companies, new acquisitions are happening outside this prolific area. Rystad estimates that almost two-thirds of the Permian’s shale oil is controlled by just six companies.

Conoco’s acquisition of Marathon indicates a strategic shift, as Marathon’s assets include acreage in the Permian but also span less known basins like Texas’s Eagle Ford, North Dakota’s Bakken, and Oklahoma’s Scoop Stack. This move followed Conoco’s unsuccessful bid for Endeavor Energy Resources, which was acquired by Diamondback Energy.

“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 surge began with Exxon’s $60 billion bid for Pioneer, Texas’s largest oil producer, in October. Chevron quickly followed with a $53 billion deal for Hess, sparking further acquisitions by major companies. Occidental Petroleum secured a $12 billion deal for CrownRock, beating out Diamondback, which later outbid Conoco with a $26 billion deal for Endeavor. Conoco’s $22 billion acquisition of Marathon came after a bidding war with Devon Energy.

Tensions between major companies have surfaced, with Exxon and Chevron clashing over Chevron’s acquisition of Hess. Exxon has filed an arbitration case, claiming it has the right of first refusal over Hess’s stake in a Guyana project, potentially jeopardizing Chevron’s deal.

The wave of mergers has drawn the attention of antitrust regulators. Although the Federal Trade Commission (FTC) has yet to block a deal, it has initiated investigations into many large acquisitions. Under FTC Chair Lina Khan, six out of eight oil and gas deals over $5 billion have received second requests for information, a significant increase from previous years.

The FTC approved Exxon’s $60 billion takeover of Pioneer, but with conditions, including barring former Pioneer CEO Scott Sheffield from serving on Exxon’s board due to allegations of collusion with OPEC. Sheffield has denied these allegations and expressed concern that such regulatory scrutiny could deter future dealmaking.

The consolidation has transformed the US oil and gas landscape from one dominated by numerous small operators to one controlled by a few large players. Conoco’s latest deal will make it larger than supermajor TotalEnergies and comparable to BP in output. Together, Conoco, Exxon, and Chevron will control 25 percent of remaining US shale oil resources, according to Rystad.

Despite the significant mergers already completed, industry executives anticipate more consolidation ahead. “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.

Amidst the flurry of dealmaking in the US oil and gas sector, one standout is the Beetaloo Basin. Situated in the central-northern region of the Northern Territory, this geological wonder boasts globally significant shale gas reserves that could have transformative effects on Australia's energy market.

Covering approximately 28,000 square kilometres, the Beetaloo Sub-basin is estimated to hold a staggering 500 trillion cubic feet of gas, primarily within the Velkerri B layer. Such reserves have the potential to revolutionize domestic supply security, drive advanced manufacturing, and enable cleaner energy production.

Remarkably, this abundance of gas resources far surpasses current domestic consumption levels, underscoring its capacity to significantly reshape Australia's energy landscape.
At present, three key players listed on the ASX are actively involved in developing the Beetaloo Basin: Empire Energy (ASX:EEG), Tamboran Resources (ASX:TBN), and Santos (ASX:STO), each spearheading efforts to tap into this immense resource potential.

Standing prominently in this space is Bryan Sheffield, a notable figure in the US oil and gas industry. As a third-generation oil and gas executive hailing from Texas and the son of Pioneer CEO Scott Sheffield, he brings a wealth of experience and investment acumen to the table. Sheffield has already made substantial contributions to the Australian gas industry, having invested over $100 million into the Beetaloo Sub-basin. This area is poised to emerge as a significant player in the global gas sector.

As of May 28, 2024, Sheffield owns 8.5% of Empire Energy. Additionally, Sheffield owns roughly 13% of issued shares in Tamboran Resources (according to the 2023 Annual Report).

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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