{{item.videoDuration}}
{{item.title}}
{{item.text}}
{{item.videoDuration}}
{{item.title}}
{{item.text}}
Oil and gas deals: Consolidation continues, as traditional energy lures back investment
Oil and gas consolidation continues at a steady clip among upstream companies — and may be picking up among midstream and oilfield services companies as well. Depressed commodity prices and export demand are fueling deals among liquefied natural gas (LNG) companies. All of this, together with a more tempered approach to renewable energy, suggests traditional energy may drive M&A activity in the near term.
- Global megadeals kicked off a consolidation trend that spans the industry. Midstream deals are occurring regularly. More recently, oilfield service companies have jumped into M&A markets.
- Geopolitical instability in Eastern Europe and the Middle East, along with increases in global demand, is spurring companies to consider deals that will increase drilling and production activity.
- Upstream consolidation is triggering midstream and oilfield services companies to develop new strategies to compete for a reduced pool of customers.
- Oil and gas companies are refocusing investment on their legacy businesses, and even private equity (PE) firms that were dedicated to renewable energy are dipping back into traditional energy. Supply chain, operational issues and an infrastructure built for fossil fuels continue to bog down the energy transition — which is affected by higher interest rates.
Note: The primary M&A data source used in the midyear outlook is S&P Capital IQ.
How market conditions are impacting M&A strategy
Solid cash flow, favorable break-even margins and strong stock prices may drive oil deals. Companies are aiming to identify acquisition targets that could make them more agile and resistant to regulatory and geopolitical headwinds. While the past decade was marked by fully integrated companies divesting midstream assets, it’s possible that today’s demand for increased productivity at reduced cost will cause companies to reexamine this approach as they look for efficiencies in the value chain.
In the meantime, as midstream companies work to seize on new activity in the Permian Basin, the value of some transactions is in the acquisition of customers, technology or geography. The focus is on improving pricing and delivery — and tools that further those aims are appealing.
The US became the largest exporter of LNG in 2023, but the Biden administration’s January decision to pause new LNG permits may present challenges to companies seeking to service high demand in Europe and Asia. While the pause may be temporary, it could accelerate consolidation, given companies’ need to feed the export market with potentially reduced gas volumes. Depressed commodities prices also may inspire deals to improve break-even margins.
“As renewed interest in traditional energy grows, so too do the number of deals designed to seize on oil and gas opportunities — a near-term strategy that eventually may fund long-term energy transition.”
The bottom line
A shift back toward traditional energy is in full swing, and we expect it to continue. Consolidation among oil and gas companies will drive M&A activity, as investors rebalance their portfolios to account for the long timeline required to realize return on investment on renewables. In oil, the trend is moving beyond upstream producers as midstream companies seek new strategies to serve a reduced number of customers. In gas, the trend is driven by a booming export market.
{{filterContent.facetedTitle}}
{{contentList.loadingText}}
{{contentList.loadingText}}
Follow us
