By Georgina McCartney | (Reuters) -The U.S. upstream oil and gas M&A market is bracing for the most challenging conditions since the COVID-19 pandemic as oil prices slump and prime acreage dries up, analytics firm Enverus said on Wednesday, even though dealmaking jumped last quarter to the second-best start to the year since 2018.
The expected downturn in mergers and acquisitions follows a series of blockbuster takeovers by oil and gas majors in recent years, culminating in a record $192 billion worth of deals completed in 2023.
There were $17 billion worth of deals disclosed in the quarter ended March 31, but activity was disproportionately driven by Diamondback Energy, which accounted for almost half of the total value, said Enverus Intelligence Research principal analyst, Andrew Dittmar.
Diamondback Energy acquired Double Eagle IV in the Midland basin for $4.083 billion in February. It also sold minerals to Viper Energy for $4.26 billion in January, the two largest deals done in the first quarter.
Outside of Diamondback, buyers were already feeling the pressure of limited acquisition opportunities and high asking prices for undeveloped drilling inventory, Dittmar said.
“Upstream deal markets are heading into the most challenging conditions we have seen since the first half of 2020. High asset prices and limited opportunities are colliding with weakening crude,” he added.
West Texas Intermediate crude futures plummeted to multi-year lows this month after U.S. President Donald Trump unveiled trade tariffs on April 2, sparking concerns about an economic slowdown.
Eight OPEC+ countries also unexpectedly agreed to advance plans to phase out oil output cuts by increasing output by 411,000 barrels per day in May.
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Sellers are aware of the scarcity of high-quality shale inventory, making them reluctant to unload assets at a discount; however, buyers cannot afford to pay as much now that oil prices are lower, Dittmar said.
“The standoff between those two groups around fair asset pricing is set to sink M&A activity,” he said.
Other major deals done included Paloma Natural Gas selling Haynesville assets in February to an undisclosed buyer for $1.2 billion.
Natural gas producers and investment firms are gearing up for increased activity in Louisiana’s Haynesville shale basin, positioning themselves for a potential boom in liquefied natural gas exports, which could be boosted by new approvals from the Trump administration.
“While low oil prices have thrown a wrench into continued consolidation in plays like the Permian, gas-focused operators are ramping up their M&A efforts ahead of increasing demand from LNG and data centers,” Dittmar said.
This week, the second-largest U.S. natural gas producer, EQT, announced plans to acquire the upstream and midstream assets of oil and gas producer Olympus Energy for $1.8 billion, aiming to expand its presence in the Marcellus region of the northeastern U.S.
“The limiting factor for gas M&A is going to be the number of attractive opportunities, given there is a smaller pool of scalable, high-quality private assets compared to what was in the Permian a few years ago,” said Dittmar.
(Reporting by Georgina McCartney in Houston; Editing by Liz Hampton, Nia Williams and David Gregorio)
