$200 Billion of M&A Wasn’t Enough in US Oil Patch

Even after a record $200 billion dealmaking frenzy last year, US oil and gas producers haven’t consolidated nearly enough. On a-per-barrel basis, there are still too many companies, too many chief executives, and too many drilling rigs wooing a limited pool of available capital.The solution is simple: more M&A.Granted, the industry is today a lot slimmer than it once was. If you attend industry events where people still exchange business cards – rather than pair iPhones – and you keep a rolodex, just flip through it to see how much has changed since the pandemic.

I did so a few weeks ago as I was setting up a meetings ahead of an industry conference in Houston. The result was a trip downmemory lane: Anadarko Petroleum, among the first to go; Whiting Petroleum, merged and renamed; Endeavor Energy Resources, about to disappear; Cimarex Energy, merged; Concho Resources, long gone; Encana Corp., rebranded. The list goes on.Still, if my own worn-out rolodex serves as any reference, there is plenty of scope left for a fresh round of consolidation. Few outside the industry know them, but there are plenty of independent exploration and production (E&P) companies in the US. The segment to focus on is publicly listed firms with a market value under $25 billion – but above $1 billion.

In no particular order, as I flip my cards, the bracket includes the likes of EQT Corp., Coterra Energy Inc., Marathon Oil Corp., Ovintiv Inc., Permian Resources Corp., Matador Resources Co., APA Corp. and Civitas Resources Inc. They’re not household names, but for M&A bankers and lawyers I speak to, they’re all candidates for consolidation. I struggle to believe that by the end of the year, some of the above names wouldn’t have either bought someone else or been acquired.Bigger isn’t always better, but with Wall Street generalist investors largely ignoring oil stocks under $25 billion in market value, boards of directors necessarily need to prioritize size. Some companies may achieve growth in earnings per share by buying back their own stock. But not everyone has that luxury.

That’s why more M&A is needed, and it’s already coming: Year-to-date, North American oil and gas companies have already announced nearly $50 billion in deals. If sustained at a similar pace throughout the year, it would nearly match 2023’s record activity.In most cases, either small and medium-sized E&P firms combine among themselves, or they would be prey for larger companies — ConocoPhillips, Devon Energy Corp. and EOG Resources Inc., three potential 2024 acquirers, if you believe the chatter among bankers and lawyers.