Number of oil and gas mergers and acquisitions hits a 17-year low in Q4 of 2022

Number of oil and gas mergers and acquisitions hits a 17-year low in Q4 of 2022

Energize Weekly, February 1, 2023

The volume of oil and gas sector mergers and acquisitions fell to a 17-year low in the last quarter of 2022 as deal value for the quarter declined 13 percent year-over-year to $13 billion, according to energy industry analyst Enverus Intelligence Research. Deals for the total year were valued at $58 billion.

“Activity was particularly depressed during the last six weeks of 2022 and has been restrained to start 2023,” the Enverus report said. Still, the need for publicly held operators to secure inventory should provide “a tailwind” for mergers and acquisitions in 2023.

There were 160 deals during the quarter, with two deals accounting for $8.2 billion in value and four deals making up $11.3 billion of the total, as activity was driven by large companies targeting high-quality assets.

The biggest acquisition was by the Hamm family, which bought the public portion of Continental Resources Inc. for $5.2 billion – the family already owned most of the company. The second-biggest deal Marathon Oil Corp.’s purchase of Ensign Natural Resources for $3 billion, followed by two Diamondback Energy purchases – FireBird Energy for $1.6 billion and Lario Oil & Gas for $1.5 billion.

“Large-cap public companies like Devon Energy, Diamondback Energy, and Marathon Oil dominated deal activity in the back half of 2022,” Andrew Dittmar, an Enverus director, said in a statement. “These buyers have the balance sheet strength and favorable stock valuations to take advantage of large, high-quality offerings from private sellers. Critically, they can strike deals that are both accretive to current cash flow and extend their runway of drilling locations.”

These larger, publicly owned companies will have the ability to target the highest quality inventory in core plays – such as the Permian and Eagle Ford for oil and Appalachia and Haynesville for gas – in 2023.

“Inventory in these plays is likely to continue to increase in value as fewer quality positions with scale remain,” the report said.

Deal activity in 2022 was largely driven by private equity sales, a trend Enverus expects will continue as private equity firms still hold significant high-quality assets and buyers are likely to continue to be public companies.

Small- and mid-cap companies will be in a tighter position when it comes to acquisitions in 2023 and may target less-proven areas, like the Permian Rim, the Eastern Eagle Ford and the Rockies.

It will be challenging for these companies “to thread the needle of buying assets at accretive multiples and being able to pay for inventory,” Dittmar said.

The drop in oil and gas field deals may be partly tied to a broad, multi-industry slowdown in mergers and acquisitions as central banks continue to tighten fiscal policy. “We anticipate M&A could remain challenged this year until more clarity is reached on recessionary risks and the outlook for commodity prices,” Enverus said.

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