In its annual report detailing activity around mergers and acquisitions (M&A) for the upstream sector of the oil and gas industry, energy intelligence and analytics firm Enverus finds that deal activity slowed significantly during 2022. The report’s authors said in a release that M&A transactions fell by 13% on a year-over-year basis.
Enverus identified 160 deals totaling about $58 billion for the calendar year, with just 26 transactions totaling $13 billion coming during the 4th quarter. Overall, the analysts find that, while the average deal value fell by only about 20%, the volume of transactions collapsed to a two-decade low.
“Large-cap public companies like Devon EnergyDVN +0.3%, Diamondback EnergyFANG -0.1%, and Marathon OilMRO 0.0% dominated deal activity in the back half of 2022,” Andrew Dittmar, director at Enverus Intelligence Research, said in the release.
“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 both accretive to current cash flow and extend their runway of drilling locations. For smaller companies, which are still having their equity value discounted, it is challenging to thread the needle of buying assets at accretive multiples and being able to pay for inventory.”
Continuing with the “bigger is better” theme that has dominated the shale industry in recent years, Enverus attributes the dramatically lower number of deals during the year to the acquiring companies seeking to identify targets with $1 billion-plus valuations and the highest quality assets. During the 4th quarter, only 4 such deals were completed, as shown in the table below. Big Permian Basin producer Diamondback was the acquiring company in two of those deals, taking over both Lario Oil & Gas and Firebird Energy, a pair of fellow Permian operators. The combined total of those deals came to slightly over $3.1 billion.
Marathon was also able to improve its inventory in the Eagle Ford Shale in South Texas with its $3 billion acquisition of Ensign Oil & Gas. Enverus notes that these deals enabled the acquiring companies to add more than 500 new future drilling locations to their portfolios, both of which now encompass more than 10 years of planned drilling activity.