By Nicole Jao
A recent report from Ernst & Young has unveiled a significant surge in dealmaking activity within the oil and gas industry, with a 57% increase recorded last year. Top energy companies collectively spent $49.2 billion on mergers and acquisitions in 2023, marking a substantial rise from the $31.4 billion spent in 2022. This surge in activity was primarily driven by mega deals among integrated oil and gas companies.
According to the report, M&A activity is expected to persist throughout this year and into 2025, fueled by the anticipation of more mega deals. Additionally, expenditures on oil and gas exploration and development increased by 28% to $93.1 billion last year.
This spike in spending on dealmaking and expanding reserves highlights a strategic shift within the industry, moving away from a focus on shareholder returns towards growth and investment in core operations. Companies have been redirecting their focus towards driving efficiency through scale and leveraging existing operations.
Despite a 55% decrease in profits to $83.9 billion in 2023, largely attributed to lower West Texas Intermediate (WTI) spot prices, companies in the oil and gas sector have been actively engaging in acquisitions and mergers to strengthen their positions in the market.
Leading the pack in property acquisitions in 2023 was Chevron, with total property acquisition costs amounting to $10.6 billion. This was largely driven by Chevron's $6.3 billion deal to acquire Denver-based oil exploration and production company, PDC Energy. Exxon Mobil also made waves with its $60 billion acquisition of Pioneer Natural Resources in May, showcasing the industry's appetite for strategic acquisitions.
Overall, the oil and gas industry is witnessing a period of significant transformation and consolidation, as companies strive to navigate changing market dynamics and position themselves for long-term growth and sustainability.
Analysis: The oil and gas industry has seen a substantial increase in dealmaking activity, driven by a shift towards growth and investment in core operations. Companies are focusing on driving efficiency through scale and leveraging existing operations to strengthen their market positions. This trend is expected to continue in the coming years, reshaping the industry landscape and presenting opportunities for investors to capitalize on strategic acquisitions and mergers.