OPINION: In a dismal oil market, the list of US shale players up for grabs is growing shorter by the day as companies with healthy balance sheets take their pick of producers.
US supermajor Chevron’s $4.2 billion acquisition of Noble Energy in July seemed like it would be the biggest deal of the year when it was announced in July. Devon Energy's purchase of WPX Energy for $2.6 billion followed in September.
Then, at the start of this week, ConocoPhillips swooped for Concho Resources in an all-shares deal worth $9.7 billion.
A day later, Pioneer Natural Resources revealed it will buy Permian basin peer Parsley Energy for $4.2 billion — an all-stock combination that has been mooted in industry circles of late.
Pioneer chief executive Scott Sheffield said factors behind the significant pick-up in shale patch mergers-and-acquisitions activity are a recovery in oil prices to around $40 per barrel, more optimism about industry prospects for the second half of next year, and hope for a coronavirus vaccine before too long.
Analysts had also been expecting the market to fire up in the second half of this year as those with stronger balance sheets seemingly got their pick of smaller players, taking advantage of low oil prices and of competitors overloaded with debt.
Shale producers have been hit particularly hard by the industry downturn as many were overleveraged, forcing a rush of Chapter 11 bankruptcy filings.
With the recent deals taking Noble, WPX, and Concho off the market, Sheffield said in an investor call following the Pioneer-Parsley transaction that “it seems like the best companies have been picked off".
So, is M&A activity in the shale patch already at an end?
Sheffield argued that over-leveraged balance sheets could prevent future consolidation in the next few years, leaving only three or four independent “survivors” with a market capitalisation of over $10 billion.
As a tumultuous year for the industry — and wider world — draws to a close and budgets reset for 2021, companies may have to move fast before the next viable shale target is taken off the list.
(This is an Upstream opinion article.)