Big oil enters 2024 strengthened by U.S. industry consolidation
Business
Big oil enters 2024 strengthened by U.S. industry consolidation
HOUSTON (Reuters) - The oil and gas industry went on a $250 billion buying spree in 2023, taking advantage of companies' high stock prices to secure lower-cost reserves and prepare for the next upheaval in an industry likely to undergo more consolidation.
A surge in oil demand as world economies shook off the pandemic downturn has stoked acquirers' enthusiasm. Exxon Mobil (XOM.N), Chevron Corp (CVX.N) and Occidental Petroleum (OXY.N) made acquisitions worth a total of $135 billion in 2023. ConocoPhillips (COP.N) completed two big deals in the last two years.
The grand prize in this dealmaking is the largest U.S. shale-oil field, the Permian Basin in west Texas and New Mexico. The four companies are now positioned to control about 58% of future production there.
Each aims to pump at least 1 million barrels per day (bpd) from the oilfield, which is expected to produce 7 million bpd by the end of 2027.
And more transactions are on the horizon. Three-quarters of energy executives polled in December by the Federal Reserve Bank of Dallas expected more oil deals worth $50 billion or more to pop up in the next two years.
Endeavor Energy Partners, the largest privately held Permian shale producer, is exploring a sale that could further concentrate U.S. shale oil output.
"Consolidation is actively changing the landscape," said Ryan Duman, director of Americas upstream research at energy consultancy Wood Mackenzie. "A select few companies will determine whether (production) growth will be strong, more stable or somewhere in between."
The consolidation will have spillover effects on oilfield servicers and pipeline operators. The companies that provide drilling, hydraulic fracturing and sand and transport oil and gas to market are entering an era of fewer customers wielding more power over pricing.
"Consolidation is good for producers but doesn't help service companies at all. It will squeeze their margins as existing contracts are renegotiated," said an executive with a U.S. oil producer who declined to be identified because he was not authorized to speak publicly.
Pipeline operators face their own consolidation wave with fewer new oil and gas pipes being approved and built, said Rob Wilson of pipeline experts East Daley Analytics.
