Upstream Oil & Gas Mergers Hit Yearly Low In 4th Quarter, 2024

Upstream oil and gas industry merger and acquisition (M&A) activity during 2024 came to a robust $105 billion in total deal value according to a new report released Wednesday by big energy data and analysis firm Enverus. The 2024 total was the third highest Enverus has recorded since it began tracking M&A activity in 2014, but the level of action tailed off during the 4th quarter.

2024 Merger Value Declines From Record Highs

“Deal value and volume continued to drop in the final quarter of 2024 from its peak at the end of 2023 as buyers grappled with fewer M&A targets to pursue,” Andrew Dittmar, principal analyst at Enverus Intelligence Research (EIR), an Enverus subsidiary, said in a release. “There are also quite a few larger E&Ps working to integrate their previous deals before returning to market to acquire more. Increased volatility in oil prices may have also deterred some buyers, while there is rising enthusiasm for gas and gas-weighted assets to feed burgeoning demand from LNG and data centers.”

The largest deal tracked by EIR during the final three months of 2024 came in November, when Coterra Energy acquired Avant Natural Resources and Franklin Mountain Energy in the prolific Delaware Basin – which makes up the western half of the Permian Basin region – for a combined $3.95 billion. “The Permian remains at the top of the list for where buyers would prefer to add assets, but it’s also the most challenging market to buy into from the perspective of available targets and sellers’ expectations on pricing,” said Dittmar.

But overall, the biggest deals during Q4 2024 were focused on other regions, most notably Appalachia, which saw three major deals targeting natural gas production. EIR says this is part of a longer-term trend during which “[t]he value of gas-focused M&A increased four times in 2024 compared to 2023, rising above $20 billion for the first time since 2016.”

EIR says that the growing liquefied natural gas (LNG) export business has become a driver of gas-focused M&A deals in recent years. With so many export facilities located in south Louisiana, gas production in the Haynesville Shale region have become coveted by acquiring companies due to their geographical proximity and pipeline network that delivers gas into those facilities. EIR also points out that “[i]nternational buyers, including Asian importers of LNG, are coming back to U.S. shale assets after being discouraged by poor returns a decade ago.”

But still, Dittmar says, “The Permian remains at the top of the list for where buyers would prefer to add assets.” He goes onto add the most active and prolific oil and gas onshore basin on earth has become an extremely challenging market to add assets due to the premium price tag demanded by sellers.

“For buyers considering acquiring one of the remaining Permian targets, the question will be if the quality and resource expansion upside is worth the price of admission. For many companies, particularly smaller sized E&Ps that have modest valuations on their own stock, the decision is likely to be to look elsewhere,” said Dittmar.

Big Recent Merger Targets Multiple Basins

One company that looked in both the Permian and elsewhere most recently is Diversified Energy, which operates more wells in the U.S. than any other operator. Diversified started out as an Appalachia-based acquirer and producer of later-life wells, but has more recently expanded its operations into states like Alabama, Louisiana, Texas, and Oklahoma.

Diversified announced on Monday that it has entered into a deal to acquire Maverick Natural Resources, which is a portfolio company of institutional investor EIG. In a release, Diversified notes that a portion of the deal “directly offsets Diversified’s core Western Anadarko position with active development in the Cherokee Play, and provides a new Permian asset base with multiple zones in the Northern Delaware Basin.”

Diversified CEO Rusty Hutson points out that, “The acquired producing assets have demonstrated leading well performance and are a natural fit with our operating advantage and existing acreage. Notably, the combined footprint in Oklahoma and the Western Anadarko Basin creates one of the largest in terms of production and acreage, which includes the emerging Cherokee formation.”

The Bottom Line

The total deal value for 2024, though well down from 2023, still illustrates a busy M&A market for the domestic upstream segment of the industry, given that the past year did not see any of the $50 billion-plus blockbuster deals which drove the record high $192 billion in deal value seen in 2023. Barring another blockbuster between two of the biggest corporate players, the expectation is for more deals similar to the Diversified/Maverick transaction and for corporate acquisitions of the remaining big privately-owned drillers, mainly in the Permian.

Following years of consolidation in the U.S. shale sector, identifying the right merger fit has gotten harder. As Dittmar points out, “finding a good strategic fit between assets and getting management team alignment has gotten more challenging. The industry will continue to consolidate, but likely not at the same breakneck pace seen during the last two years.”