Major Oil Companies Make Moves in Megamerger Frenzy

Major oil companies like Chevron, Exxon, Occidental, and Diamondback have engaged in multibillion-dollar mergers, aiming to bolster their positions in the oil and gas market.
These megamergers reflect a trend of consolidation in the U.S. oil sector, driven by higher oil prices and geopolitical uncertainties, with companies seeking to enhance their production capacities and competitiveness.
The wave of mergers is reshaping the landscape of the U.S. oil industry, reducing the number of players and ensuring the dominance of a few major oil companies in the future.

Over the last year, several oil and gas majors have undergone high-profile mergers as we enter the era of the megamerger. Big Oil in the U.S. appears to be undergoing a transition, as several well-known companies make large acquisitions to solidify their position in the future of oil and gas. In October, both Chevron and Exxon announced a major new deal, with Occidental following in December, and Diamondback in February, suggesting this is the new direction that U.S. oil and gas is going to go from now on.

In October, Chevron announced it was buying Hess for $53 billion in stock. This provided Chevron with a 30 percent stake in Guyana’s Stabroek Block, giving the company a piece of an 11 billion barrel pie and a future in “low-carbon” oil production. This merger demonstrates Chevron’s aim to diversify its operations, allowing it to expand to new locations in Guyana and North Dakota – through Bakken shale operations. While it added just 386,000 bpd to Chevron’s output, it provides significant potential for future production.

That same month, Exxon Mobil announced it had purchased Pioneer Natural Resources for $59.5 billion in an all-stock deal. This is Exxon’s largest merger since its acquisition of Mobil. In contrast to Chevron, this deal enhanced Exxon’s position in regions of existing operations, doubling its production volume in the Permian Basin. The merger added 711,000 bpd to Exxon’s portfolio.

The mergers demonstrated clear ambitions from the two companies to continue investing in oil and gas operations, so long as the global demand for crude remains high. This follows several other mergers in the North American shale space last year, with a few large companies absorbing smaller operations to boost their output in the region. Bob McNally, the president of Rapidan Energy Group, stated, “These megadeals are just a prelude to this large investment wave I expect in coming years.” He added, “These deals signify the shift from a multi-year bust phase in oil that began in 2014 to a multi-year boom phase that should last well through this decade.”

In December, another megamerger took place when Occidental Petroleum Corporation acquired local competitor CrownRock Minerals in a $12 billion deal. The deal is expected to be completed in the first quarter of this year. The merger supports CrownRock’s plan to develop a 100,000-acre space in the Midland Basin, which forms part of the Permian and produced 15 percent of U.S. crude in 2020. It will add 170,000 bpd of oil to Occidental’s output and add 1,700 undeveloped locations in the Permian to its portfolio. Occidental will finance the deal through $9.1 billion in debt and about $1.7 billion in common stock. This marks a distinct shift in the region as CrownRock is one of the last major private producers in the Permian, alongside Endeavor Energy Resources.

Production in the Permian was once dominated by small producers that deployed new production techniques to access vast amounts of oil in the regions that many of the oil majors overlooked, establishing the U.S. as the world’s biggest crude producer. This encouraged large public companies to launch operations in the region, in addition to their global operations. This was only made possible after fracking technology was started being used, unlocking oil that was previously trapped in the region. This led a large number of companies to operate in the region. Mark Viviano, a managing partner at investment firm Kimmeridge Energy Management, explained “Consolidation is the last piece of the puzzle in rationalizing the shale industry.”

This month, solidifying the shift in the region, Diamondback Energy announced plans to buy Endeavor in a $26-billion merger. This is expected to boost Diamondback’s value to $50 billion. There were rumours that Diamondback’s rival ConocoPhillips was also interested in purchasing Endeavor. The deal provides Diamondback with an additional 400,000 bpd of output in the Permian.

Diamondback’s CEO Travis Stice, stated, “This is a combination of two strong, established companies merging to create a ‘must own’ North American independent oil company.” He added that the company would “have industry-leading depth and quality that will be converted into cash flow with the industry’s lowest cost structure”.

The wave of megamergers has been spurred by higher oil prices over the last couple of years, and crude shortages following the sanctions imposed by the U.S. and Europe on Russian energy, following Russia’s invasion of Ukraine. Oil companies in the U.S. have been racing to increase their crude output to meet the growing demand for alternative supply chains. Several companies are using the massive profits they have earned over the last two years to invest in mergers, solidifying their position in U.S. oil production. This will reduce the number of companies operating in the U.S. oil regions and ensure a few oil majors’ positions in the future of the industry.

By Felicity Bradstock for Oilprice.com