U.S. Upstream M&A Market Poised to Recover in 2020

By Joytan Chatterjee
January 24, 2020
2 minutes read
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Stronger corporate M&A deal flow and an uptick in asset A&D activity among U.S. oil & gas producers is expected during 2020, following a relatively subdued M&A market in 2019. Finbrook tracked ~400 M&A&D transactions across the U.S. during 2019, including corporate M&A, asset farm-in / farm-outs, acreage deals, drilling JVs and other strategic partnerships, across ten major oil producing regions. Despite several ‘big-ticket’ deals above US$1 billion, including the mega Occidental-Anadarko deal, the past year witnessed an overall drop in deal activity relative to previous years.

According to Finbrook’s Global Upstream Oil & Gas M&A Database, a total of US$95.7 billion worth of deals were announced during 2019, including the US$55.2 billion Occidental-Anadarko deal. Excluding this mega-deal, approximately US$40.5 billion worth of deals were announced, driven to a large extent by 10 other deals above US$1 billion, which together accounted for a further US$22.7 billion in reported deal value. These included Hilcorp’s acquisition of BP’s Alaskan business (US$5.6 billion), Callon’s acquisition of Carrizo (US$3.0 billion), WPX’s buyout of Felix Energy II from private equity firm EnCap (US$2.5 billion), Parsley Energy’s acquisition of Jagged Peak (US$2.3 billion), Comstock’s acquisition of Covey Park Energy (US$2.2 billion), and PDC Energy’s merger with SRC (US$1.6 billion). The Permian Basin, Alaska (driven by the Hilcorp – BP deal), and U.S. Mid Continent together accounted for about 53% of total deal value, with the Permian alone accounting for almost 30% of 2019 aggregate deal value.

Relatively stable oil prices and record high production during 2019 has led a number of U.S. operators to boost dividend payouts and buy back stock over the past 12 months. With credit markets projected to tighten in 2020 and production growth beginning to slow as new drilling opportunities become scarcer and existing well production yields drop, smaller and mid tier U.S. companies are projected to cut back spending to preserve cash, giving rise to deal opportunities for larger, cash-rich operators.

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