Enverus Intelligence Research (EIR) reveals Q2 203 Upstream M&A surge with $24 billion in 20 deals, with Permian at the center. Chevron’s $7.6 billion acquisition of PDC Energy stands out, driving an average deal size of $1.2 billion, twice the Q1 average.
Andrew Dittmar, Enverus Director, emphasizes the rising pressure on public buyers to secure quality drilling inventory as remaining opportunities narrow, leading to higher asset valuations.
Notably, six deals exceeding $1 billion in Q2 2023 involved Permian assets, five including PDC Energy. The majority were buyouts of E&Ps funded by private equity (PE) and operated by public companies in the Permian basin.
PE firms have been reducing their upstream activity, raising and deploying capital at a slower pace. Only ten commitments were made to upstream teams in 2023, compared to over 100 at peak activity. These groups are now exploring opportunities outside the Permian, particularly the Eagle Ford and Williston basin.
Public company M&A is expected to play a more significant role in the overall deal market as PE activity slows and private opportunities diminish. Already, $15 billion in public-public deal-making took place in 2023, including Chevron’s acquisition of PDC, Baytex Energy and Ranger Oil’s merger, and Exxon Mobil’s acquisition of Denbury.
While corporate sellers seem willing to accept low-premium, all-equity deals, Permian core companies may demand higher premiums.
Looking ahead, the industry anticipates more corporate mergers between public companies, with major players poised to participate. Even the largest independents could become potential targets. Smaller companies with limited inventory options may find corporate mergers the best way forward.
Furthermore, gas deals are expected to gain traction as the commodity hits a bottom, driven by growing U.S. LNG exports in the coming years.
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