Have low oil prices killed M&A?

Howdy ya’ll and welcome to Energy Source coming to you from the heart of oil and gas country, Houston, Texas.

I’m Kristina Shevory, a native Texan and the FT’s new energy correspondent, penning my very first Energy Source newsletter, in which I’ll be focusing on mergers and acquisitions.

Before we get to that, my FT colleague Malcolm Moore has a story on how investment in fossil fuels will fall this year for the first time since the Covid pandemic, according to the International Energy Agency.

A sharp drop in oil prices is forcing companies to reassess their plans and is expected to lead to the largest fall in investment since 2016, when oil prices crashed below $30 a barrel. 

“This is the first time we have seen such a decline, except for Covid, because of lower prices and lower oil demand,” said Fatih Birol, the head of the Paris-based intergovernmental energy advisory body. 

Thanks for reading, Kristina.

M&A activity stalls in the US oil patch

Dealmaking has become pretty quiet down here in Houston. What is going on right now in the oil patch is what we call in Texas a Mexican stand-off. Everyone has their guns pointed at each other, and no one wants to draw first. Or in terms of the oil and gas market, sellers are worried about selling too low and buyers are worried about overpaying.

“It’s harder to get things done now because of the spread between bid and ask,” said Patti Melcher, founder and managing partner of EIV Capital, a private equity firm that supplies growth capital.

Lower oil prices, which are down by 14 per cent since the start of the year amid tariffs and Opec+ supply boosts, have trimmed buyers’ ability to continue to pay heavy valuations. Sellers, who know good assets are in short supply, are also reluctant to offload those properties at a discount.

The value of US upstream M&A reached $17bn in the first quarter of 2025, the second-strongest start to the year since 2018, according to Enverus Intelligence Research. However, nearly half of that amount came from two deals by Diamondback Energy. Dig a little deeper, and deals have slacked off since their high point of $144bn in the fourth quarter of 2023.

“Upstream deal markets are heading into the most challenging conditions we have seen since the first half of 2020,” said Andrew Dittmar, principal analyst at Enverus. “The stand-off between those two groups around fair asset pricing is set to sink M&A activity.”

Since the start of 2014, crude prices have fallen by more than 5 per cent quarter-over-quarter 17 times. In 11 of those quarters, deal activity decreased with an average decline in value of 30 per cent, according to Enverus.

Deals usually take three to six months to complete, lawyers say, so those currently being worked on started late last year. Most deals have slowed in 2025 and the pace is a shadow of previous years. Overall upstream M&A peaked at $192bn in 2023, before dropping to $105bn in 2024.

Before the collapse in oil prices this year, prices for good quality assets were steadily increasing. Oil-weighted properties were set to hit their fifth straight year of rising prices until President Donald Trump’s “liberation day” tariffs put the brakes on them. 

The Permian Basin, the most prolific oilfield in the country, accounting for 51 per cent of total US output, has been the star attraction for acquisition activity because of the high-quality inventory and strong returns. But most of the best properties have been bought and are largely controlled by the big publicly traded companies.

What’s left on the market is expensive and that has pushed some buyers to look outside the Permian to mature and emerging plays. Last week, shale pioneer EOG Resources, which hasn’t made a significant deal in almost a decade, snapped up Encino Acquisition Partners for $5.6bn to expand its exposure in the Utica shale in Ohio.

“This acquisition combines large, premier acreage positions in the Utica, creating a third foundational play for EOG alongside our Delaware Basin and Eagle Ford assets,” said Ezra Yacob, EOG’s chief executive and chair.

With lower crude prices, M&A activity is moving towards natural gas-weighted prospects to take advantage of the increase in demand for LNG and the AI-fuelled data centre boom.

The Haynesville Shale, which straddles Louisiana, Texas and Arkansas, is the most attractive to buyers because of its proximity to LNG export facilities on the Gulf Coast. “The question now is how do we pivot to something outside of oil,” said Mari Salazar, senior vice-president and director of energy banking at BOK Financial.

Private equity groups, buoyed by recent sales to public companies, are expected to increase their purchases this year if crude prices firm. “The influx of capital has come back. Most of our investors don’t worry about volatility so long as we generate returns,” said Billy Quinn, managing partner of Pearl Energy Investments, a Dallas private equity firm.

Family offices, attracted by the traditional long-term returns of the energy sector, are also entering the space to diversify their holdings. “These families want to play and invest where institutional capital is flying away,” said Brad Nelson, managing director at investment bank Stephens. “We’re in the early stages of them coming into the space. This isn’t a fad.” (Kristina Shevory)

Power Points

Cobalt Holdings has scrapped its move to list in London, weeks after unveiling a planned $230mn share offering backed by investors, including Glencore.

Texas has removed BlackRock from a corporate blacklist, which had barred it from receiving the state’s investment funds due to its climate policies.

Global commodities trader Trafigura has warned “turbulence” in the market would extend into the second half of the year as geopolitical uncertainty, higher tariffs and inflationary pressures take their toll.

Energy Source is written and edited by Jamie Smyth, Martha Muir, Alexandra White, Kristina Shevory, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.