Author: Mark Young

Q1: U.S. consolidation continues to dominate upstream M&A

U.S. producers seeking greater scale in core operating areas drove global upstream M&A to $56 billion in Q1. Evaluate Energy data shows this is a 41% increase over the global quarterly average spend for the past five years.

It was the second consecutive quarter where U.S. assets accounted for 90% of deal value.

Six corporate mergers each valued at over $1 billion saw the acquirer add significant production in existing key operational areas, headlined by Diamondback Energy’s $26 billion deal in the Permian Basin to acquire Endeavor Energy.

All six deals see the acquirer’s production base grow by at least 25%, with Chesapeake set to more than double in size by merging with Southwestern Energy, pending approvals.

The acquisitions by APA and Talos Energy completed by quarter end. At the time of writing, the remaining four deals listed above remain in play, along with the following deals in the U.S. and around the world:

Corporate mergers usually see acquirers seek to trim and streamline as they integrate new assets. The completion of these deals could be a key driver of M&A activity in the second half of 2024.

Some existing or acquired assets will be deemed “non-core” and sold based on several factors, including debt reduction, a less-than-ideal location, oil weighting, operating costs, or emissions profile.

Diamondback is a good example. It spent the last year integrating assets acquired for $3.1 billion via corporate mergers in early 2023. Since those deals completed, the company has made:

  • Upstream sales in Texas for a combined $348 million
  • A drop-down royalty sale to subsidiary Viper Energy for further $75 million
  • Midstream sector sales totaling almost $900 million

With so many mergers taking place all at once across the upstream sector, it is likely we will see increased levels of “non-core” assets being sold as 2024 progresses. This provides growth opportunity for smaller public or private operators.

 

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Petrobras in growth mode having cut risk profile

Brazil’s Petrobras has taken huge steps to alter its risk profile over the past few years, bringing the company in line with oil and gas supermajors.

The company is now planning increased investment in exploration, reserves replacement and production growth.

Evaluate Energy data shows that Petrobras has radically altered its capital structure to a company now comparable (based on key risk ratios) to the world’s other largest oil and gas producers.

Debt to capital employed ratios were once significantly higher than BP, Chevron, ConocoPhillips, ExxonMobil, Shell and TotalEnergies.

Petrobras is now the third least debt-funded company within that group relative to overall capital employed.

Debt reduction

This has been achieved by a drastic reduction in debt.

Petrobras’ total debt excluding leases is $80 billion lower than 2017 and approximately $15 billion lower than the supermajor average.

Operating cash flow increases have supported the bulk of this capital restructuring. Petrobras has also been extremely active selling assets and generating extra cash.

Next steps

Petrobras maintained production and proved reserves life at consistent levels since 2017 (around 2.8 million boe/d and around 11-12 years, respectively). However, among the supermajors only ConocoPhillips invested less in terms of capital spending in pure dollar terms. Petrobras channelled the lowest proportion of cash to capex.

This is set to be addressed by Petrobras’ latest strategic plans.

Increased spending is earmarked for its core Pre-Salt developments in deep waters offshore. Petrobras is also revisiting ideas of international expansion, allocating significant capital to exploration, and investments in areas it previously sought to exit – including petrochemicals and renewable power and technologies.

Source: Petrobras Strategic Plan 2024 – 2028, available via Evaluate Energy Documents

 

This analysis was created using:

  • Evaluate Energy: Our data enables in-depth analysis of financial and operating performance of hundreds of upstream and downstream oil and gas companies around the world using a range of proprietary tools and dashboards. Learn more here.
  • Evaluate Energy Documents: For more information, watch a short video here or click here.

 

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Diamondback will almost double production base in $26bn Endeavor deal

The $26 billion acquisition of Endeavor Energy by Diamondback Energy is the fifth multi-billion-dollar corporate merger already in the U.S. this year and takes U.S. upstream deal spending to over $45 billion, according to Evaluate Energy data.

Diamondback says the deal will almost double its Permian Basin production base to over 800,000 boe/d by 2025, as well as provide:

  • A combined asset base of 838,000 net acres in the Permian Basin
  • 6,100 pro forma locations with break evens at under $40 WTI
  • Annual synergies of $550 million representing over $3.0 billion in NPV10 over the next decade

Last August, Diamondback had finalized the integration of assets acquired for a combined $3.1 billion in late 2022 and early 2023. “Going forward, it’s not important to win every deal,” said Diamondback CEO Travis Stice at the time. “It’s important to win deals that make us not just bigger but better.”

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Europe leads oil and gas M&A activity beyond the U.S.

Europe saw almost $20 billion in new upstream oil and gas deals agreed in 2023. This leads all regions outside of the United States, according to Evaluate Energy data.

A December agreement between Harbour Energy and Wintershall Dea was the highlight. Harbour will acquire substantially all of Wintershall’s upstream assets and European CCS licenses for just over $11 billion.

Canada was the other non-U.S. ‘region’ to see more than $10 billion in new deals. This was driven by:

  • TotalEnergies’ decision to sells its Surmont oilsands interest to ConocoPhillips and its remaining Canadian business unit to Suncor
  • Two Montney-focused deals by Crescent Point Energy.

For more on global M&A activity and a focus on U.S. deal-making in 2023, click here.

* The Middle East has numerous deals where transaction details are not disclosed.

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Global M&A tops $200 billion – largest upstream deal spend in over a decade

Mega mergers involving ExxonMobil, Chevron and Occidental Petroleum in Q4 skyrocketed 2023’s upstream deal value to $234 billion, based on Evaluate Energy data.

That equates to the largest annual spend in over a decade, and just $2 billion short of the largest recorded since Evaluate Energy’s M&A database launched in 2008. It is only the fourth time since 2008 that spending has topped $200 billion.

Deal counts point to a down year without Q4 activity

2023 spending was driven by three individual deals to a far greater extent than we have seen historically:

While each of the banner years 2009, 2010 and 2012 included at least one upstream deal valued at over $25 billion, in each case deal volume played a much more significant role in generating over $200 billion in M&A spending. 2023 managed to hit a comparable deal value despite a vastly reduced number of deals valued at over $100 million and $50 million.

U.S. predictably dominates

With the ExxonMobil and Chevron mega deals approximating a combined $125 billion, the U.S. dominated global deal values in 2023.

Excluding these two deals, the U.S. upstream sector still saw over $25 billion more in M&A deals agreed in 2023 than the rest of the world combined.

Much of this activity was focused on the Permian Basin – which has now amassed over $400 billion in new deals in the past 10 years.

Eight of the ten largest upstream deals were U.S. focused, including smaller deals for both ExxonMobil and Chevron. ExxonMobil completed the $4.9 billion acquisition of Denbury in November. Chevron finalised its acquisition of DJ-Basin focused PDC Energy for $7.6 billion in August.

Top 10 upstream oil and gas deals in 2023

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Permian deals pass $400 billion since 2014 after Exxon mega-deal

Record-breaking productivity levels and low-cost production have seen the Permian Basin attract major M&A activity in the U.S. upstream sector.

In fact, following ExxonMobil’s $64.5 billion mega-deal to acquire Pioneer Natural Resources, Evaluate Energy data shows that the basin has now passed $400 billion in new deals agreed over the past decade.

For comparison, U.S. deals agreed without any Permian assets now account for $375 billion combined after Chevron’s own $60 billion mega-deal to acquire Hess Corp. was announced this week.

Deal values approach $100 billion in 2023 alone

Deals involving Permian assets account for 52% of all U.S. activity since the start of 2014 by value.

  • ExxonMobil’s acquisition of Pioneer means that 2023 is a record year for Permian-related spending, with deal totals approaching $100 billion for the first time.
  • The previous annual record in 2019 was also primarily down to one mega-deal that included Permian assets, when Occidental Petroleum won a bidding war with Chevron to acquire Anadarko Petroleum for around $55 billion.

Both years would have been below $40 billion in deals agreed without the two major deals boosting totals.

Production of over 6 million boe/d traded

The same ~900 deals that included Permian assets saw 6.1 million boe/d change hands since 2014*. This represents 40% of all U.S. production involved in M&A deals over the same timeframe.

We can attribute the large volumes traded in 2019 and 2023 to the Occidental/Anadarko (743,000 boe/d) and ExxonMobil/Pioneer (711,000 boe/d) deals, which alone comprise approximately half of the annual totals in those years.

Without those mega-deals, 2020 is arguably the “most active” year for Permian Basin M&A.

This was a year characterized by many mergers taking place across the U.S. for depressed values and low premiums.

Permian-related deals at this time included:

  • ConocoPhillips acquiring Concho Resources for $13.3 billion
  • Devon Energy acquiring WPX Energy for $5.7 billion
  • Chevron acquiring Noble Energy for $13.0 billion (although DJ Basin assets were the focus for Chevron)

Permian unsurprisingly dominates the top 10 U.S. deals by value in the past 10 years

Source: Evaluate Energy M&A 

*Full production from all basins in any deal including Permian production is included in this total. This does not represent purely Permian basin production traded.

 

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Q3 upstream deal values drop 34% below five-year average

Q3 upstream oil and gas M&A spending was 34% below the five-year quarterly average and 42% down on Q2 with $21 billion in new deals announced.

Full deal details are available within Evaluate Energy’s M&A database. Click here for details.

Key Q3 observations

  • Eight of the top 10 deals by value were oil-focused.
  • Payback multiples remain low: median EBITDA multiples were 2.9x compared to 7x over the past decade.This indicates the market has little faith in the current high earnings environment continuing in the medium- to long-term.
  • 78% of deal activity by value focused on U.S. and Canadian assets.
    • ExxonMobil agreed a $4.9 billion deal to acquire Denbury in the largest deal (more below).
    • Permian Resources Corp. will acquire Earthstone Energy for $4.5 billion to create a $14 billion premier Delaware Basin operator.
      • For more on the Permian Basin, click here for why Diamondback Energy’s CEO thinks M&A targets are getting tougher to find
    • Strathcona Resources acquired Pipestone Energy in Canada’s largest deal, valued at around C$1 billion.
  • Approximately 400,000 boe/d changed hands; the lowest quarterly volume since Q2 2020.

While deal activity was down, prices were up

  • WTI ($80.83) rose 10% on Q2 2023 levels
  • Henry Hub gas prices ($2.50) rose 19% since Q2, although this represents the second lowest quarterly average since 2020

ExxonMobil secures carbon capture assets with Denbury

In many ways, Denbury’s oil and gas production in the Gulf Coast and Rocky Mountains regions represents a perfect bolt-on acquisition to ExxonMobil’s U.S. upstream portfolio.

While this remains Denbury’s predominant business, its extensive carbon capture infrastructure and future storage potential – currently reported at around 2 billion metric tonnes – is very attractive.

The $4.9 billion deal equates to an EBITDA multiple of nearly 8x – a sum far more in line with corporate mergers of years gone by that shows just how much value ExxonMobil attributes to this carbon capture asset base.

The deal will instantly improve ExxonMobil’s ESG rating and open up an extra revenue stream; the new U.S. Climate bill provides tax credits of $85 per tonne of carbon stored permanently or $60 per tonne of carbon used in enhanced oil recovery.

ExxonMobil followed the Denbury deal with two more carbon capture agreements:

  • Extending a carbon capture technology collaboration with FuelCell Energy Inc. (July).
  • Securing four licenses in the U.K.’s first carbon capture licensing round (September).

Top 10 deals by value – Other supermajors in low carbon or renewable sectors

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below.

 

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Top 10 upstream oil and gas deals in Q3 2023: U.S. dominates

The largest upstream deals of Q3 2023 were almost exclusively in the United States, where four of the five Q3 deals valued at over $1 billion took place.

While a major asset sale in Oman, LNG investments in Australia and corporate mergers in Africa, Canada and Europe also cracked the top 10 this quarter, the U.S. continues its long-term domination of the upstream M&A space.

In fact, Evaluate Energy data shows that 70% of Q3’s global upstream M&A spending was focused on U.S. assets.

Evaluate Energy’s full review of Q3 activity is available now. It includes more on these regional trends, detailed analysis of ExxonMobil’s acquisition of Denbury, and shows how recent activity stacks up against the past five years of deal-making.

 

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ARC Resources and Tourmaline Oil among Canadian gas producers to post spending records

Canada’s gas producers posted five-year highs in capital spending in Q1 2023, according to new analysis using Evaluate Energy’s cash flow data.

Canada’s 17 natural gas weighted producers posted a combined spend of over C$2 billion for the first time and seven of the group recorded individual five-year highs in spending.

The seven companies posting individual highs included the group’s largest two producers, ARC Resources and Tourmaline Oil, as well as several smaller producers including relative newcomer Kiwetinohk Energy.

Full details on the record spenders can be found below. Cash used for M&A activity is excluded.

An eighth member of the group, Paramount Resources, was just short (~C$200,000) of recording a similar record spend, as it focuses on drilling and completion operations in the Grande Prairie and Kaybob regions of Alberta.

These record spends could be seen across the North American oil and gas industry in Q1 2023. More details can be found here.

Evaluate Energy’s streamlined cash flow data, including detailed breakdowns of all uses and sources of cash, provide our users with a far clearer picture than ever before of how oil and gas producers use their cash as commodity prices change over time. Data points include capital expenditures, finance raised, debt repaid, assets sold or acquired, dividend payments and more. 

 

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$53 billion in North American buybacks – What does this mean for upstream shareholders?

Share buybacks are having a major impact on investors in upstream North American oil and gas companies – and Evaluate Energy’s latest data has more than one way to identify who’s benefiting the most.

First, examine the sheer amount of dollars spent.

Investors welcome buybacks because share prices get a boost. Reviewing company cash usage – a calculation streamlined in our database – shows 87 U.S. and Canadian producers spent $53 billion on buybacks over the past 15 months.

More than 80% was spent by 33 oil-focused U.S. producers plus five Canadian oilsands operators. These groups include the largest producers in the study, with ConocoPhillips, Imperial Oil, CNRL, Suncor and Occidental among the biggest spenders.

Second, and perhaps more interestingly, we have improving per share metrics.

Operators of all sizes are buying back shares. Analyzing per share metrics identifies significant activity regardless of company size and cash outlay. If a company buys back shares, i.e. reduces the number of shares it has in-market, this has a direct positive impact on any metric that investors use to analyze performance on a per-share basis. Earnings or cash flow per share are popular examples.

A simple all-encompassing barometer for success for us here, therefore, is the percentage reduction in outstanding shares, a figure that directly impacts every single per-share metric.

By analyzing this data since January 2022, several smaller companies are highlighted.

The results reflect the extent of change in share volume within these smaller companies.

Appalachia-focused CNX Resources plus International Petroleum, Advantage Energy, ARC Resources and Enerplus – four Canadian companies not involved in oilsands – comprise five of the top seven companies when ranked by percentage reduction in outstanding shares.

This means these five producers were able to have the largest relative positive impact on their per share performance metrics than nearly every other producer in our group.

This is despite just $2.5 billion in buybacks combined over the entire 15-month period, proving that share buybacks of all sizes can have a significant impact when analyzing oil and gas company performance.

(All $ figures shown in US$)

Evaluate Energy’s streamlined cash flow data, including detailed breakdowns of all uses and sources of cash, provide our users with a far clearer picture than ever before of how oil and gas producers use their cash as commodity prices change over time. Data points include capital expenditures, finance raised, debt repaid, assets sold or acquired, dividend payments and more. 

 

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