Enverus: Weak oil prices and limited shale acres will impact energy M&A by 2025
Enverus, an analytics firm, said that the U.S. Upstream Oil and Gas M&A Market is bracing itself for the most challenging conditions in the past decade, as oil prices plummet and prime acreage disappears, despite the fact that dealmaking surged last quarter, making it the second best start to the year ever, despite the fact that the number of deals jumped to the highest level since 2018.
After a string of record-breaking takeovers of oil and gas companies in recent years that culminated with a $192 billion deal in 2023, the expected decline in mergers and purchases follows.
Andrew Dittmar, principal analyst at Enverus Intelligence Research, stated that there were deals worth $17 billion disclosed for the quarter ending March 31. Diamondback Energy accounted almost half of the total value.
Diamondback Energy purchased Double Eagle IV, located in the Midland basin, for $4.083 in February. Viper Energy also bought minerals from Diamondback Energy in January for $4.26 Billion, making it the second largest deal in the first quarter.
Dittmar stated that buyers outside of Diamondback were already feeling pressure from limited opportunities to acquire and high prices for undeveloped drill inventory.
"Upstream deal market conditions are about to become the most difficult we've seen since the beginning of 2020." "High asset prices and limited opportunity are colliding with weakening oil," he said.
West Texas Intermediate crude oil futures fell to multi-year lows in April after U.S. president Donald Trump announced trade tariffs on the 2nd, stoking fears of an economic downturn.
In May, eight OPEC+ members also agreed unexpectedly to accelerate plans to phase-out oil production cuts by increasing their output by 411,000 barrels a day.
Dittmar explained that sellers are aware of the scarcity and high quality of shale oil inventory. They are reluctant to sell assets at a discounted price, but buyers can't afford to pay so much because oil prices have dropped.
He said that the standoff between these two groups over fair asset pricing will sink M&A activities.
Paloma Natural Gas sold its Haynesville assets to an unnamed buyer in February for $1.2 billion.
Investment firms and natural gas producers are preparing for increased activity in Louisiana's Haynesville Shale Basin, in preparation for an increase in exports of liquefied gas fueled by Trump's new approvals.
Dittmar stated that "low oil prices have put a wrench in the continued consolidation of plays such as Permian. Gas-focused operators, however, are increasing their M&A activities ahead of an increase in demand for LNG and datacenters."
The second largest U.S. gas producer, EQT said this week that it plans to increase its production.
The company purchased the midstream and upstream assets from the oil-and-gas producer Olympus Energy at a cost of $1.8 billion in order to expand its presence within the Marcellus region, located in the Northeast U.S.
Dittmar said that the number of attractive M&A opportunities is likely to be limited, given the smaller pool of high-quality assets and scalable private assets than what existed in the Permian Basin a few short years ago. (Reporting and editing by Liz Hampton in Houston, Nia Williams, David Gregorio; Reporting by Georgina Mccartney in Houston)
(source: Reuters)
