Mark Young, Senior M&A Analyst with Evaluate Energy, examines the latest mergers and acquisitions activity in the upstream oil and gas sector, and M&A trends to watch in 2025 in a Q&A with Practical Law Finance at Thomson Reuters. The full discussion, which includes charted M&A data, is available for free download here.
Read below an extract of Young’s expert analysis, addressing the main drivers of this activity and how market and other developments are impacting producers’ M&A strategies.
Thomson Reuters: What is the current state of upstream mergers, acquisitions, and divestitures activity in the US, including the most active basins and participants (with a focus on exploration and production companies). What were the primary drivers of these transactions?
Young: M&A activity within the US fluctuated considerably over the past decade as the market continued its transformation in terms of production and capital investment. Most recently, in 2024, M&A activity was driven by:
- A sustained desire to build top-tier Permian inventory in the Delaware and Midland basins.
- Large operators exploring top-tier acreage in well-known but less consolidated areas, such as the Williston Basin and Eagle Ford.
- Large mergers creating a subsequent “long tail” of M&A activity driven by several factors, notably shedding non-core or low-margin assets and debt repayments.
The total value of announced deals in 2024 was $108 billion, with a focus on oil-weighted assets during a period of suppressed gas prices. Adding top-tier Permian inventory remained a major priority for producers, especially earlier in 2024. Overall activity, however, has been far less focused on Permian assets than in late 2022 and throughout 2023.
The recent expansion in M&A activity beyond the Permian’s Midland and Delaware hotspots, however, is probably the story of 2024. Available top-tier acreage in these areas is now scarce following two years of consolidation. Operators are now looking for high quality inventory in less-consolidated areas such as Williston Basin or Eagle Ford.
Thomson Reuters: What challenges did acquirors face integrating newly acquired assets into existing operations?
Young: Integrating new assets was a key driver of M&A activity in 2024. Several assets became available following the completion of large mergers, motivated by a need among purchasers to reduce debt or divest of non-core or low-performing assets that could no longer compete for capital within their portfolios.
September 2024’s sale by Occidental of a large Delaware Basin position to Permian Resources for $817 million is a good example. This deal followed Occidental’s $12 billion merger with CrownRock in August. APA Corp. has also sold several assets since completing its $4.5 billion merger with Callon Petroleum in April 2024. The company has agreed $2.1 billion in combined sales announced for non-core positions and royalty interests in the Permian Basin and Eagle Ford. With so many mergers still in play or having just completed in late 2024, expect this trend to continue into 2025.
Thomson Reuters: Were there any material differences in the types and terms of the deals transacted in 2024 versus prior years?
Young: Royalty deals were important in 2024. We expect this structure of deal, where operators sell minor interests on assets to companies focused on holding these types of interests for cash, to be popular again in 2025. These sales work well for upstream operators in a world where raising capital via equity issuances or new debt is tougher than it may have been in the past.
2024 saw deals valued at over $5 billion that at least included mineral and royalty interests sold on US assets. Only 2022 saw a greater deal value ($7.7 billion) in the past ten years.
We expect royalty deals to increase in frequency in 2025 given the volume of large mergers recently completed. Sales of mineral or royalty interests are a quick way to generate cash to repay debt or fund short-term integration. For example, Kimbell Royalty Partners began 2025 with a $231 million deal in the Permian, followed in late January by a $4.45 billion drop-down transaction between Viper Energy and Diamondback.
Thomson Reuters: Gas-weighted producers faced many challenges in 2024 including low natural gas prices and limited pipeline takeaway capacity that acted as a drag on acquisitions. For the few transactions that did take place, how were the companies involved able to overcome or manage these challenges?
Young: The quick answer is deal structure. Gas prices are down but are expected to rebound in the relatively near future due to planned pipeline and liquefied natural gas (LNG) infrastructure capacity increases, as well as data center and AI demand growth in the mid- to longer term.
During 2024, operators were mostly happy to keep what they held and wait for price improvements. The structure of the two most notable gas-weighted deals that did occur reflected this perspective:
- Crescent Energy’s acquisition of SilverBow Resources in the Eagle Ford.
- The formation of Expand Energy via the merger of Chesapeake Energy and Southwestern Energy.
These were all-stock deals, which afforded sellers the opportunity to continue to participate in the upside if or when the gas sector picked up by retaining shares in the acquirer post-deal completion. We expect Haynesville natural gas assets in East Texas and Louisiana to be in high demand when the market recovers, due to its proximity to the huge amount of LNG infrastructure coming onstream in the Gulf Coast region.
Click here for a free PDF download of the full discussion between Mark Young and Practical Law Finance at Thomson Reuters. The download includes charted M&A data.
