The U.S. oil and gas industry is experiencing a whirlwind of activity as the first quarter of the year saw a record-breaking $51 billion in deals, according to data provider Enverus. The surge in mergers and acquisitions is largely centered around the Permian Basin in West Texas and New Mexico, where companies are eager to expand their drilling inventories amidst rising oil prices.
With break-even costs of around $64 a barrel in the Permian Basin and oil prices averaging $77 per barrel last quarter, it’s no surprise that the region continues to drive M&A activity within the industry. Andrew Dittmar, Enverus Intelligence Research’s principal analyst, pointed out that the Permian Basin is home to the most high-quality drilling prospects in the U.S.
Some of the most notable deals include Diamondback Energy’s $26 billion bid for Endeavor Energy Partners, Apache Corp’s $4.5 billion acquisition of Callon Petroleum, and Chesapeake Energy’s $7.4 billion deal for Southwestern Energy. However, regulatory hurdles are delaying some major acquisitions, such as those involving Exxon Mobil and Chevron, as they concentrate holdings in key shale fields.
Despite the current frenzy of deal-making, Dittmar believes that the rapid pace is unlikely to continue. Strong oil prices are incentivizing companies to hold onto non-core drilling assets rather than disposing of them, highlighting the theme of inventory scarcity among exploration and production companies.
Overall, the energy sector is facing an exciting and dynamic landscape as companies navigate the changing market conditions and seek out strategic opportunities for growth and consolidation.
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