A perfect storm of FOMO (fear of missing out) and robust balance sheets is set to drive further consolidation in the oil and gas industry. Major players in the U.S. market have been on a spree of acquisitions and mergers, with the latest being Diamondback Energy’s agreement to purchase Endeavor for a whopping $26 billion. This move solidifies Diamondback Energy’s position as one of the leading operators in the prolific Permian Basin, spanning Texas and New Mexico.
Notably, in the previous year, Exxon Mobil acquired Pioneer Natural Resources, Chevron acquired Hess, and Occidental Petroleum acquired CrownRock, highlighting the industry’s appetite for consolidation.
Enverus, an energy analytics firm, revealed that the fourth quarter of 2023 witnessed an all-time high of energy producer deals worth a staggering $144 billion. Analyst Andrew Dittmar from Enverus describes the current M&A trend as “scorching,” with over $40 billion worth of deals already signed in 2024.
In January of this year, Chesapeake Energy made a strategic move by acquiring Southwestern Energy. This merger is expected to create a natural gas powerhouse that can leverage the growing gas exports from the United States.
The industry now braces itself for more transformative deals as companies seek to capitalize on the opportunities presented by this wave of consolidation.
Consolidation in the Permian Basin: A Last Wave of Deals?
Analysts and industry experts are speculating on the future of dealmaking in the Permian Basin, with opinions divided on whether the recent Diamondback deal signals the last wave of consolidation or if there are still opportunities for other companies to participate.
While some believe that the choicest assets have already been acquired, others suggest that there might still be room for companies to enter the market. The reaction to the Diamondback deal, which saw a 9.4% rise in stock price on Monday, could encourage other companies to explore similar opportunities.
Roth MKM analyst Leo Mariani believes that the most attractive assets have already been snapped up and views the current phase as potentially the final wave of consolidation. He identifies Permian Resources, Matador Resources, and HighPeak Energy as public companies with attractive assets that could become potential targets.
Truist analyst Neal Dingmann highlights Permian Resources, known for its frequent acquisitions in recent years, as another possible target for consolidation.
In addition to the oil sector, Mariani suggests that the Chesapeake deal could spur natural gas producers to consider mergers. Range Resources, Antero Resources, and Comstock Resources are among the potential targets mentioned by Mariani.
As the Permian Basin continues to attract attention, it remains to be seen whether this recent wave of consolidation represents the last chance for companies to acquire valuable shale assets in the region or if there are further opportunities awaiting exploration.
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