HOUSTON — The oil and gas industry went on a $250 billion buying spree in 2023, taking advantage of companies’ high stock prices to secure lower-cost reserves and prepare for the next upheaval in an industry likely to undergo more consolidation.
A surge in oil demand as world economies shook off the pandemic downturn has stoked acquirers’ enthusiasm. Exxon Mobil, Chevron Corp, and Occidental Petroleum made acquisitions worth a total of $135 billion in 2023. ConocoPhillips completed two big deals in the last two years.
The grand prize in this dealmaking is the largest U.S. shale-oil field, the Permian Basin in west Texas and New Mexico. The four companies are now positioned to control about 58 percent of future production there.
Each aims to pump at least 1 million barrels per day (bpd) from the oilfield, which is expected to produce 7 million bpd by the end of 2027.
And more transactions are on the horizon. Three-quarters of energy executives polled in December by the Federal Reserve Bank of Dallas expected more oil deals worth $50 billion or more to pop up in the next two years.
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Endeavor Energy Partners, the largest privately held Permian shale producer, is exploring a sale that could further concentrate U.S. shale oil output.
“Consolidation is actively changing the landscape,” said Ryan Duman, director of Americas upstream research at energy consultancy Wood Mackenzie. “A select few companies will determine whether (production) growth will be strong, more stable or somewhere in between.”
The consolidation will have spillover effects on oilfield servicers and pipeline operators. The companies that provide drilling, hydraulic fracturing and sand and transport oil and gas to market are entering an era of fewer customers wielding more power over pricing.
“Consolidation is good for producers but doesn’t help service companies at all. It will squeeze their margins as existing contracts are renegotiated,” said an executive with a U.S. oil producer who declined to be identified because he was not authorized to speak publicly.
Pipeline operators face their own consolidation wave with fewer new oil and gas pipes being approved and built, said Rob Wilson of pipeline experts East Daley Analytics.
Expansions to existing lines out of the Permian Basin will provide some relief, but by mid-2025 pipeline capacity from the Permian will be 90 percent full, estimates East Daley.
Renewed investment in fossil fuels
The latest acquisitions illustrate oil companies’ quest for untapped and lower-cost oil and gas reserves.
Among the major deals of 2023 was Exxon’s $59.5 billion bid for Pioneer Natural Resources and purchase of Denbury Inc for $4.9 billion. Chevron offered $53 billion for Hess and bought oil rival PDC Energy for $6.2 billion. Occidental will pay $12 billion for CrownRock.
Helped by their strong share prices, most of the year’s major acquisitions were stock swaps, not the big cash outlays that would jeopardize buyers’ balance sheets if oil prices were to fall as they did in 2016 and 2020. Exxon, for example, is sitting on about $33 billion in cash, more than six times the amount it held four years ago.
Rising interest rates in 2023 made paying for acquisitions with stock more attractive to investors than funding new renewable energy projects with cash. Offshore wind projects in the U.S. and France were canceled due to increasing interest rates and supply chain costs.
Oil demand globally rose about 2.3 million barrels per day (mbpd) in each of the last two years, to 101.7 mbpd. That increase tightened global stocks, helping bolster prices as OPEC and allies kept output constrained.
The emergence of fewer, bigger oil producers focused on extending the longevity of their fossil fuel businesses may put the companies in greater tension with governments prioritizing a shift to clean energy sources.
Meanwhile, global oil prices are expected to be largely stable in 2024 after averaging about $83 per barrel in 2023, down from $99 in 2022. Analysts see oil in 2024 trading between $70 per barrel and $90, above the $64 a barrel average in 2019.
Reporting by Gary McWilliams in Houston and Kane Wu in Hong Kong; editing by Cynthia Osterman.
