In a transformative year for the oil and gas sector, the industry embarked on a $250 billion acquisition spree in 2023, capitalizing on high stock prices to secure cost-effective reserves and brace for anticipated industry consolidation. Major players, including Exxon Mobil, Chevron Corp, and Occidental Petroleum, executed acquisitions totaling $135 billion, positioning themselves strategically to navigate the evolving landscape.
A surge in global oil demand, fueled by economic recovery from the pandemic, heightened enthusiasm among industry acquirers. The focus was notably on securing reserves, with the Permian Basin in west Texas and New Mexico emerging as a coveted asset. Exxon Mobil, Chevron Corp, Occidental Petroleum, and ConocoPhillips are set to control approximately 58% of future production in this prolific U.S. shale-oil field.
The push for each of these companies is to achieve a minimum output of 1 million barrels per day from the Permian Basin, which is anticipated to produce 7 million barrels per day by the end of 2027.
The momentum of consolidation is expected to persist, with three-quarters of energy executives foreseeing additional oil deals surpassing $50 billion in the next two years, as reported by the Federal Reserve Bank of Dallas in December.
Endeavor Energy Partners, the largest privately held Permian shale producer, is exploring a potential sale, further concentrating U.S. shale oil output and contributing to the evolving industry landscape.
Ryan Duman, Director of Americas Upstream Research at Wood Mackenzie, notes that "consolidation is actively changing the landscape," with a select group of companies playing a pivotal role in determining the trajectory of production growth.
However, the ramifications of consolidation extend beyond oil producers, impacting oilfield service providers and pipeline operators. The concentration of power among fewer customers is expected to influence pricing dynamics, potentially squeezing margins for service companies as existing contracts are renegotiated.
Pipeline operators are facing their own wave of consolidation, with fewer new oil and gas pipelines receiving approval and being constructed. While expansions to existing lines offer some relief, it is projected that by mid-2025, pipeline capacity from the Permian Basin will reach 90%, according to estimates from East Daley Analytics.
Amidst these changes, the acquisitions underscore oil companies' pursuit of untapped and cost-effective oil and gas reserves. Most major deals in 2023 were stock swaps, leveraging strong share prices and minimizing cash outlays.
Despite the positive sentiment within the industry, concerns about potential antitrust scrutiny have arisen, prompting U.S. regulators to seek additional information from Exxon and Chevron. The companies remain confident in receiving approval, citing the robust competition in the U.S. oil market.
The global oil market is expected to witness stability in 2024, with prices projected to trade between $70 and $90 per barrel. This follows an average price of $83 per barrel in 2023, signaling a sustained recovery from the challenges of previous years. As the industry transforms, the emergence of fewer, larger oil producers aligns with their focus on extending the longevity of fossil fuel businesses, a shift that may necessitate alignment with government priorities emphasizing a transition to cleaner energy sources.