Q2 saw $30.2 billion of U.S. upstream deal activity, according to Enverus M&A Analytics, led by a $22.5 billion public company combination that continued a remarkable wave of E&P consolidation and highlighted the trend’s expansion beyond the Permian core. While both ConocoPhillips and Marathon Oil are active in the Delaware Basin, their transaction opens considerably more running room for Conoco elsewhere, particularly in the Eagle Ford. Rounding out Q2’s billion-dollar-plus deal tally was another public company combo in the Eagle Ford—Crescent Energy’s $2.1 billion SilverBow Resources acquisition—and private equity exits by two EnCap portfolio companies: Ameredev II in the Delaware Basin for $1.9 billion and XCL Resources in the Uinta Basin for $2.55 billion.
Including July’s $5 billion Devon Energy-Grayson Mill Energy deal in the Bakken and $1.1 billion takeout of PE-backed Point Energy Partners by Vital Energy and Northern Oil & Gas, 12 deals valued at $1 billion or more have been announced YTD, putting 2024 on track to outpace last year’s high-water mark of 19 such deals. In addition, the average value for transactions of $100 million or more in 1H24 was $3.84 billion, on par with 2023’s average of $3.81 billion and more than tripling the previous six years’ $1.14 billion average.
Buyers appear focused on expanding their opportunity set after a consolidation avalanche in the core areas of the Delaware and Midland basins. Deals with assets primarily in these basins accounted for just 7% of total announced value for Q2, down from more than 50% in both Q1 and 4Q23 and from an average of 39% since the beginning of 2020.
For the Conoco-Marathon deal, not only is most of the acquired drilling inventory outside the Permian—1,600 out of 2,000 total locations—but the buyer also prominently highlighted more than 1,000 acquired Eagle Ford refrac candidate wells as part of its go-forward opportunity set. Devon also highlighted Grayson Mill’s roughly 300 refrac candidates in investor materials, although not as prominently as Conoco. SM Energy, acquiring XCL in conjunction with Northern Oil & Gas, highlighted the competitiveness of the Uinta—still an emerging play compared to the well-developed Eagle Ford and Bakken—with its existing Midland Basin runway.
The resource expansion trend can even be seen within the Permian itself. Matador Resources’ management, discussing its Ameredev acquisition, noted about one-third of the 371 net locations it attributes to the deal are in the Wolfcamp A and B and Third Bone Spring, with the other two-thirds being in shallower, less delineated Bone Spring intervals. A severe tightening of supply for core low-breakeven drilling inventory in the Permian after years of consolidation is driving the resource expansion efforts. According to a recent analysis by Enverus Intelligence® | Research (EIR), available to EIR subscribers, 1H24 deals priced drilling inventory at an average $2.1 million per location, up from $1.3 million in 2023 and $1.1 million in 2022. The average includes deals with value solely allocated to production—none to inventory—such as APA Corp.’s corporate acquisition of Callon Petroleum and its lower-quality Permian drilling locations.
Gas deals have been harder to transact in light of the price stagnation of the last year and a half, with just 12 breaking the $100 million threshold since YE22 compared to about 50 oil-weighted deals. For the most part, sellers appear determined to hold out until the looming Gulf Coast LNG buildout raises gas demand and prices, lifting the value of their assets. The exceptions tend to be all-stock corporate deals like Crescent’s SilverBow acquisition, with a mix of gas- and oil-focused inventory, or Chesapeake Energy’s $11.5 billion acquisition of Southwestern Energy, where the sellers have the opportunity to participate in the upside once the liquefaction trains fire up.
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