The U.S. oil and gas buying spree isn't over yet
In November and December 2023, the three largest U.S. oil companies each announced major acquisitions worth more than $135 billion. These transactions include ExxonMobil's acquisition of Vanguard Natural Resources, Chevron's acquisition of Hess and Occidental Petroleum's acquisition of Crown Rock. Industry executives and analysts expect consolidation in the oil and gas sector to continue amid high equity values. Currently, many oil and gas companies are looking to obtain more oil and gas resources for production in the Permian shale basin.
The second half of 2023 saw some huge acquisitions in the U.S. oil and gas industry, the largest in the industry in years. Most of the trading formats are stock trading, with oil majors taking advantage of their high share prices to offer friendly all-stock deals to smaller competitors.
In October 2023, ExxonMobil announced the acquisition of Pioneer Natural Resources in a $59.5 billion all-stock transaction. The total implied enterprise value of the transaction, including net debt, is approximately $64.5 billion. ExxonMobil said the deal will transform the company's upstream portfolio, more than doubling the company's footprint in the Permian Basin. A few weeks later, Chevron announced that it would acquire Hess in an all-stock deal of $53 billion, with a total enterprise value of $60 billion, including debt. On December 11, 2023, Occidental Petroleum announced the acquisition of Permian Basin oil and gas producer Crown Rock for cash and stock in a transaction valued at approximately $12 billion. The acquisition will add to Occidental Petroleum's primary portfolio in the Permian Basin, adding about 170,000 barrels of oil equivalent per day to high-margin unconventional oil and gas production in 2024, as well as about 1,700 undeveloped sites, Occidental Petroleum said.
The three deals of ExxonMobil, Chevron and Occidental Petroleum alone are worth more than $135 billion. All three companies plan to increase oil and gas production in the Permian Basin, which still holds the largest untapped high-quality oil and gas reserves, analysts said.
For 2024, Chevron and ExxonMobil have announced capital budgets for this year, with the focus remaining on the Permian Basin. ExxonMobil expects its oil and gas production to reach 3.8 million b/d in 2024 and increase to 4.2 million b/d in 2027, driven by increased oil and gas production growth in the Permian Basin and Guyana. Chevron's 2024 upstream investment budget is $14 billion, of which $5 billion will be spent on the development of the Permian Basin.
Market participants believe that the acquisition boom of U.S. oil and gas companies around the Permian Basin is still not over. In October 2023, Enverus Intelligence, a U.S. energy consulting firm Research Andrew Dietmar, Senior Vice President, said: "The Permian Basin is uniquely positioned among the U.S. shale districts with the most high-quality deposits and the greatest opportunities for resource expansion. The future of shale oil and gas in the Permian Basin is bright, and companies are looking to get a piece of the pie in the future, so M&A activity here will be very strong. Companies with operations in the Permian Basin will be the most attractive acquisition targets in the future. ”
According to the Dallas Federal Reserve's Energy Survey, industry executives at companies active in the Permian Basin expect more large deals to be announced in the near future. Of the 122 executives who answered the survey questions, 77 percent expect more acquisitions of $50 billion or more in the next two years. The survey found that large exploration and development companies located in Texas and southern New Mexico are expected to continue to purchase assets and resources. When asked about the company's main goal for 2024, the most popular response for large companies was "acquiring assets", followed by "reducing debt".
Analysts at Wood Mackenzie & Co., who said after ExxonMobil and Chevron announced their respective acquisitions, said the M&A spree was not speculative as the oil and gas industry is still in an upcycle and investors value scale. In addition, the oil majors mostly agreed to all-stock or cash-plus-stock acquisitions. This gives them enough cash to complete their capex plans in the short to medium term without having to take on additional debt.
