US oil and gas M&A activity increased 57% in the last year due to industry consolidation

The report said that the dealmaking activity in oil and gas increased by 57% in 2017 as companies boosted their development spending due to higher cash flow from previous years' profits.

According to a report by Ernst & Young, the top energy companies spent $49,2 billion on mergers & acquisitions in 2023. This is up from $31,4 billion in 2022. The major factor driving the increase was mega deals between integrated oil and gas firms.

EY says that mega-deals will continue to drive M&A activity this year and through 2025.

Exploration and development costs grew by 28% last year to $93.1 billion.

The shift from a focus on shareholder return over growth to a strategy that prioritizes dealmaking and increasing reserves is a significant change in strategy. Many firms were using this approach for years in an attempt to attract back investors who fled the sector.

Oil and gas companies spent a half as much on dividends and stock repurchases last year, down from 57.7 billion dollars in 2022.

Sector-wide consolidation sparked M&A activity. This boosted companies' total expenditures to 142.3 billion dollars, 36% more than in 2022.

Bruce On, partner in EY's Strategy and Energy Transactions group, stated in an interview that the focus in 2023 was to consolidate positions of operators. Bruce On noted a shift in investment strategy towards core operations.

He said that companies with a lot of cash are focused on maximizing efficiency and existing operations.

The report stated that their profits dropped 55% to $83.9 billion in 2023, due primarily to the lower West Texas Intermediate crude oil spot price.

Chevron was by far the largest buyer of property in 2023, with a total acquisition cost of $10.6 billion. This is largely because of its $6.3 billion purchase of Denver-based oil exploration company PDC Energy.

Exxon Mobil acquired Pioneer Natural Resources for $60 billion in May of this year. Chevron announced in October that it had reached an agreement with Hess to purchase the oil producer for $53 billion. A legal dispute has delayed the deal until at least mid-2025. (Reporting and editing by Muralikumar Aantharaman; Nicole Jao)

(source: Reuters)