Mergers and acquisitions in the U.S. upstream oil and gas sector fell for a third straight quarter, marking an end to blockbuster takeovers seen in recent years amid persistently low energy prices. According to Enverus Intelligence Research, deals worth $9.7 billion were closed in the third quarter, marking a 28% drop from the second quarter and putting the current year far below the record $192 billion recorded in 2023. U.S. crude futures averaged ~ $65 a barrel during the third quarter, around the level most U.S. oil producers require to break even but $10 per barrel below oil prices a year ago.
“Crude prices in the mid-$60s or worse have made it tough for sellers, especially private equity firms with oil-weighted assets,” said Andrew Dittmar, principal analyst at Enverus. “Most remaining shale M&A opportunities need stronger pricing to justify public companies paying for the undeveloped locations,” he added.
The slowdown in the U.S. dealmaking has also been attributed to a lack of opportunities in the Permian Basin, North America’s leading M&A hotspot. E&P companies have increasingly been turning elsewhere as asset values skyrocket and the Permian cools.
Earlier in the year, EOG Resources (NYSE:EOG) acquired Encino Energy for $5.6 billion a company that specializes in the Utica Shale; Diversified Energy (NYSE:DEC) bought Anadarko Basin giant Maverick Natural Resources for nearly $1.3 billion while Citadel paid $1.2 billion for Paloma Natural Gas. Paloma Natural Gas primarily operates in the Haynesville Shale region, which spans the Louisiana and Texas border, with its assets concentrated on the Louisiana side. The company manages a significant number of mineral acres in this area and focuses on developing and producing natural gas there.
In contrast, Canada’s hot M&A streak has continued in the current year, with upstream M&A deal value totaling nearly $12 billion in the first half of the current year, almost equal to the full-year average over the past five years. Top takeovers included Whitecap Resources (OTCPK:WCPRF) acquisition of Veren for $15 billion; Strathcona Resources (OTCPK:STHRF) divested its Montney assets while CNRL purchased Shell Plc’s (NYSE:SHEL) stake in the Athabasca Oil Sands Project. However, Strathcona recently terminated its takeover bid for MEG after Cenovus Energy (NYSE:CVE) made a revised, higher offer for MEG. Canada’s Oil Sands have a significantly lower breakeven point, and can still eke out a profit at oil prices that would make the majority of U.S. Shale Patch companies print red.
By Alex Kimani for Oilprice.com
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