The U.S. upstream oil and gas M&A market is bracing for the most challenging conditions since the COVID-19 pandemic as oil prices slump and prime acreage dries up, analytics firm Enverus said on Wednesday, even though dealmaking jumped last quarter to the second-best start to the year since 2018.
The expected downturn in mergers and acquisitions follows a series of blockbuster takeovers by oil and gas majors in recent years, which culminated in a record $192 billion worth of deals done in 2023.
There were $17 billion worth of deals disclosed in the quarter ended March 31, but activity was disproportionately driven by Diamondback Energy, which accounted for almost half of total value, said Enverus Intelligence Research principal analyst, Andrew Dittmar.
Diamondback Energy acquired Double Eagle IV in the Midland basin for $4.083 billion in February. It also sold minerals to Viper Energy for $4.26 billion in January, the two largest deals done in the first quarter.
Outside of Diamondback, buyers were already feeling the pressure of limited acquisition opportunities and high asking prices for undeveloped drilling inventory, Dittmar said.
“Upstream deal markets are heading into the most challenging conditions we have seen since the first half of 2020. High asset prices and limited opportunities are colliding with weakening crude,” he added.
West Texas Intermediate crude futures tumbled to multi-year lows this month after U.S. President Donald Trump unveiled trade tariffs on April 2, stoking concerns of an economic slowdown.
Eight OPEC+ countries also unexpectedly agreed to advance plans to phase out oil output cuts by increasing output by 411,000 barrels per day in May.
Sellers are aware there is a scarcity of high-quality shale inventory, making them reluctant to unload their assets at a discount, but buyers cannot afford to pay recent M&A prices now that oil prices are lower, Dittmar said.
“The standoff between those two groups around fair asset pricing is set to sink M&A activity,” he said.
Other major deals done included Paloma Natural Gas selling Haynesville assets in February to an undisclosed buyer for $1.2 billion.
U.S. natural gas producers and investment firms are gearing up for more activity in Louisiana’s Haynesville shale basin, positioning themselves for a boom in liquefied natural gas exports boosted by new approvals from Trump.
(Reporting by Georgina McCartney in Houston; Editing by Liz Hampton and Nia Williams)