Oil and gas M&A deals down 50 percent to $14.8 billion quarter-over-quarter in Q1 2023
Energize Weekly, May 10, 2023
Oil and gas industry mergers and acquisitions (M&A) flagged in the first quarter of 2023 with a 35 percent drop in deals to 74 and the value halved to $14.8 billion compared to the last quarter of 2022, according to accounting and financial adviser KPMG.
Upstream sector, or exploration and production (E&P), transactions accounted for the bulk of the dollars with 16 deals valued at $8.6 billion, including a “surprise resurgence” of activity in the Eagle Ford Shale, a mature basin, in south Texas, market analyst Enverus Intelligence Research said.
Three upstream Eagle Ford deals were worth $5.3 billion, with the largest acquisition for the entire industry, Calgary-based Baytex Energy’s purchase of Houston-based Ranger Oil for $2.5 billion.
Still, upstream deal value was down 20 percent – with the average deal size of about $500 million – and deal volume was down 80 percent compared to the first quarter averages since 2016, Enverus said in its Upstream M&A Review.
“Rather than public E&Ps focusing on buying undeveloped inventory in the Permian Basin from private companies, most of the deals targeted mature assets in the Eagle Ford and included more public-to-private transactions plus a corporate merger,” Andrew Dittmar, an Enverus director, said in a statement.
There was one notable deal in the Permian Basin as Dallas-based Matador Resources bought Houston-based Advance Energy Partners for $1.4 billion.
“The recent major Permian deals have gone to large operators with Matador, a sizable company with a market cap of nearly $6 billion, among the smaller buyers,” Dittmar said. “These companies have the cash and favorable stock valuations to afford higher priced acreage.”
Small operators are in a bind, Dittmar said, as they need inventory to satisfy investors and improve their stock performance, but cannot afford these expensive resources and at the same time, improve cash flow, another marker for investors.
This will become more acute as the hunt for inventory and assets in 2023 swings back to the Permian Basin – the largest oil and gas play in the U.S., Enverus said.
The highest quality Permian resources nearly always fetch more than $2 million apiece, and some deals have approached the $3 million per location. As the inventory tightens, core locations will break the $3 million mark this year, Enverus said.
“There is still private capital hunting for deals,” Enverus said. “Much of this capital will likely target yield opportunities in mature shale plays or conventional assets. Private capital may acquire assets in areas like the Permian Rim, Mid-Continent, or Powder River Basin to explore inventory expansion opportunities.”
There was one significant deal in the midstream sector, KPMG said, as Dallas-based Energy Transfer LP bought Sugar Land, Texas-based Lotus Midstream in a deal worth $1.4 billion, adding Lotus’ 3,000 miles of pipeline and gathering systems to its 120,000-mile pipeline network.
“Demand for both O&G [oil and gas] and chemicals remains resilient, and deal activity may increase later this year (supported by recent rumors of public company consolidation within the O&G space),” KPMG said in its M&A trends report. “For now, deal makers maintain a wait-and-see attitude.”
