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Big Oil's M&A Splurge: Will the Buying Frenzy Continue?
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In recent years, the Oil/Energy space has seen a remarkable wave of mergers and acquisitions driven by major players like ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , and ConocoPhillips (COP - Free Report) . These deals are reshaping the industry landscape, with companies aiming to enhance their portfolios and gain competitive advantages amid market volatility and a shifting energy landscape.
Key Deals
The consolidation trend gained significant momentum with several high-profile deals. In October, ExxonMobil announced its $60 billion acquisition of Pioneer Natural Resources, aiming to solidify its position as the largest crude oil and natural gas liquids producer in the United States. This buyout added an estimated 16 billion barrels of oil equivalent reserves in the lucrative Permian Basin.
Following closely, Chevron secured a $53 billion takeover of Hess Corporation, primarily driven by the strategic value of the latter’s stake in the Stabroek Block off the coast of Guyana, one of the largest oil discoveries in recent years. However, this deal has faced legal challenges from ExxonMobil, which claims preemptive rights over the Hess stake, potentially delaying the merger's completion.
More recently, ConocoPhillips announced its $22.5 billion acquisition of Marathon Oil (MRO - Free Report) . This deal, expected to close by the end of 2024, will enhance Zacks Rank #3 (Hold) ConocoPhillips' onshore portfolio, adding over 2 billion barrels of resources. This acquisition highlights ConocoPhillips' strategy to deepen its inventory of high-quality, low-cost supply assets.
Several factors are driving this consolidation trend despite the inherent market volatility. First and foremost is the cost-efficiency of acquisitions compared to new drilling. With the pandemic causing a significant drop in oil demand, many companies wrote down asset values and slashed costs, learning valuable lessons in efficiency. This has made acquiring existing reserves a more attractive and financially viable option.
Furthermore, the industry is experiencing a long-term shift toward renewable energy, prompting traditional oil and gas companies to bolster their portfolios while they still can. The high oil prices and record profits of the past year have provided these companies with the financial strength needed to pursue large-scale acquisitions.
Finally, as prime drilling acreage becomes increasingly scarce, companies are expanding their horizons beyond the most coveted oilfields. For instance, ConocoPhillips’ acquisition of Marathon includes assets in various regions, such as the Eagle Ford in Texas, the Bakken in North Dakota, and the SCOOP and STACK plays in Oklahoma. This diversification strategy ensures a stable future production capacity, mitigating the risks associated with relying on a single region.
The Future of Oil & Gas Mergers
Despite the rapid pace of these deals, regulatory scrutiny remains a significant hurdle. The Biden administration has been vigilant about potential anti-competitive practices, with the Federal Trade Commission (FTC) intensifying its review process. Notably, the FTC approved Exxon’s acquisition of Pioneer with conditions, signaling a cautious approach to maintaining market competition.
Nevertheless, industry experts anticipate that the consolidation wave will continue. The rationale is straightforward: as oil companies seek to secure their future amid a transitioning energy market, mergers and acquisitions offer a clear path to maintaining and growing their reserves. This trend is likely to prevail as long as financial conditions remain favorable.
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Big Oil's M&A Splurge: Will the Buying Frenzy Continue?
In recent years, the Oil/Energy space has seen a remarkable wave of mergers and acquisitions driven by major players like ExxonMobil (XOM - Free Report) , Chevron (CVX - Free Report) , and ConocoPhillips (COP - Free Report) . These deals are reshaping the industry landscape, with companies aiming to enhance their portfolios and gain competitive advantages amid market volatility and a shifting energy landscape.
Key Deals
The consolidation trend gained significant momentum with several high-profile deals. In October, ExxonMobil announced its $60 billion acquisition of Pioneer Natural Resources, aiming to solidify its position as the largest crude oil and natural gas liquids producer in the United States. This buyout added an estimated 16 billion barrels of oil equivalent reserves in the lucrative Permian Basin.
Following closely, Chevron secured a $53 billion takeover of Hess Corporation, primarily driven by the strategic value of the latter’s stake in the Stabroek Block off the coast of Guyana, one of the largest oil discoveries in recent years. However, this deal has faced legal challenges from ExxonMobil, which claims preemptive rights over the Hess stake, potentially delaying the merger's completion.
More recently, ConocoPhillips announced its $22.5 billion acquisition of Marathon Oil (MRO - Free Report) . This deal, expected to close by the end of 2024, will enhance Zacks Rank #3 (Hold) ConocoPhillips' onshore portfolio, adding over 2 billion barrels of resources. This acquisition highlights ConocoPhillips' strategy to deepen its inventory of high-quality, low-cost supply assets.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Drivers Behind the Consolidation
Several factors are driving this consolidation trend despite the inherent market volatility. First and foremost is the cost-efficiency of acquisitions compared to new drilling. With the pandemic causing a significant drop in oil demand, many companies wrote down asset values and slashed costs, learning valuable lessons in efficiency. This has made acquiring existing reserves a more attractive and financially viable option.
Furthermore, the industry is experiencing a long-term shift toward renewable energy, prompting traditional oil and gas companies to bolster their portfolios while they still can. The high oil prices and record profits of the past year have provided these companies with the financial strength needed to pursue large-scale acquisitions.
Finally, as prime drilling acreage becomes increasingly scarce, companies are expanding their horizons beyond the most coveted oilfields. For instance, ConocoPhillips’ acquisition of Marathon includes assets in various regions, such as the Eagle Ford in Texas, the Bakken in North Dakota, and the SCOOP and STACK plays in Oklahoma. This diversification strategy ensures a stable future production capacity, mitigating the risks associated with relying on a single region.
The Future of Oil & Gas Mergers
Despite the rapid pace of these deals, regulatory scrutiny remains a significant hurdle. The Biden administration has been vigilant about potential anti-competitive practices, with the Federal Trade Commission (FTC) intensifying its review process. Notably, the FTC approved Exxon’s acquisition of Pioneer with conditions, signaling a cautious approach to maintaining market competition.
Nevertheless, industry experts anticipate that the consolidation wave will continue. The rationale is straightforward: as oil companies seek to secure their future amid a transitioning energy market, mergers and acquisitions offer a clear path to maintaining and growing their reserves. This trend is likely to prevail as long as financial conditions remain favorable.