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Is the U.S. Oil Production Boom Fading? M&A Activity Suggests So
04/02/2024![Is-the-U-S-Oil-Production-Boom-Fading-M-A-Activity-Suggests-So](https://images2.rextag.com/public/blog/258_Blog_ Is the U.S. Oil Production Boom Fading_ M&A Activity Suggests So.png)
- The US oil boom might cool off because of a lot of company mergers.
- Big companies are buying smaller ones that helped US oil do really well in 2023.
- Companies want to spend less, drill less, and give more money back to their owners.
The US oil industry made big headlines in 2023 thanks to its surprising record oil production. However, experts believe 2024 won't see the same level of growth, mainly due to one key factor: a surge in mergers and acquisitions (M&A).
So far in 2024, the oil and gas exploration sector has seen mergers worth $55 billion. This follows a record-breaking year in 2023 when the industry announced deals totaling $190 billion, the highest ever for this sector.
This wave of mergers is changing the landscape for US oil production.
Private companies played a big role in last year's oil increase. Firms like Endeavor Energy Resources and CrownRock were among the top private producers, contributing significantly to the growth in the Permian Basin's oil output. On average, the five largest private oil exploration and production companies were behind a third of the annual crude production increase in the Permian since 2019, says Rapidan Energy.
But things started to change with some major deals. ExxonMobil made headlines last year by purchasing Pioneer, securing a vast amount of oil resources in the Permian Basin. Following that, Chevron announced its acquisition of Hess. And now, in 2024, Diamondback is in the process of buying Endeavor, while Occidental plans to take over CrownRock.
Big public companies buying smaller private ones might slow US oil production growth.
Rapidan, a group of experts, says the big increase in oil production last year came from three main things: more oil from small companies, better drilling techniques, and using wells that were ready but not used yet. They don't think this will happen again this year, predicting growth will slow down from an extra 1 million barrels a day last year to just 300,000 more barrels a day in 2024.
A big deal where Diamondback is buying Endeavor shows how big chunks of oil land in the Permian Basin, a key area for oil, are moving to big companies. Morningstar, a research firm, notes that Diamondback and ExxonMobil now own about half of this important area.
Big and small oil companies have different goals. Larger ones want to spend less, do less drilling, and give more money back to their owners. Small ones used to focus more on making more oil because they didn't have to answer to as many owners.
Because of this, fewer oil rigs will be used. Stephen Ellis from Morningstar explained that big companies will stop using rigs that drill wells making less money. These wells could work for a small company but not for a big one looking to make the most money possible.
This idea, known as "capital discipline," means big companies are more interested in making sure their investments pay off well, rather than just making as much oil as possible.
Let's look at Endeavor, an oil company that since 2019 has been adding between 100,000 to 200,000 barrels of oil a day to the overall oil supply.
"Diamondback, which sticks to a careful spending plan and has promised to focus on this approach, keeping its oil production growth modest while giving money back to its shareholders, will now include that extra 200,000 barrels a day from Endeavor under this careful spending approach," said Hunter Kornfeind, an oil analyst at Rapidan Energy.
In a note, Diamondback said it's planning to keep its oil production at the end of 2023 the same as before but with less spending, showing its dedication to spending wisely and preferring quality over quantity.
Unlike private companies, public companies have to consider paying dividends and their stock value. So, while a private company might increase its oil production when prices are high, public companies can't do this as freely.
Kornfeind explained, "These independent private producers that have been boosting their production because the price of oil (WTI crude oil) was between $80 to $120 in the last few years won't be able to continue doing so."
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Occidental, CrownRock Merger Under Regulatory Review: 2024 Update
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CrownRock's 94,000+ net acres acquisition complements Occidental's Midland Basin operations, valued at $12.0 billion. This expansion enhances Occidental's Midland Basin-scale and upgrades its Permian Basin portfolio with ready-to-develop, low-cost assets. The deal is set to add around 170 thousand barrels of oil equivalent per day in 2024, with high-margin, sustainable production.
Welcome 2024: A Look Back at 2023 Top Oil and Gas Sector Deals
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2023 was quite a year for the oil and gas sector, with some big deals making the news. In the US, giants like ExxonMobil and Chevron grabbed headlines with their plans to acquire companies like Pioneer and Hess. Internationally, ADNOC wasn't left behind, expanding its reach as well. As we ring in the new year, let's recap the biggest oil and gas deals of 2023.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/297_Blog_Keystone XL Pipeline Controversy and Wildlife Disaster From Trump's Green Light to Biden's Red Light on the 15 Billion Project.jpg)
The pipeline industry in the USA faced and still faces a range of regulatory challenges, including permitting delays, environmental requirements, and public opposition to pipeline projects. In recent years, pipeline projects like the Keystone XL and Dakota Access pipelines had legal and regulatory obstacles that delayed or canceled their construction. Keystone XL Pipeline, proposed by TransCanada in 2008, aimed to transport crude oil from Canada (around Calgary and Edmonton) to refineries on the Gulf Coast (Port Arthur). The project faced opposition from environmental groups and indigenous communities, who argued that it would contribute to climate change and pose a risk to water resources. In 2015, President Obama rejected the project, citing concerns about its environmental impact. However, in 2017, President Trump revived the project, leading to further legal challenges. In June 2021, U.S. President Joe Biden officially canceled the project on his first day in office.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/282_Blog_Renewable Natural Gas How RNG Changes the Industry.jpg)
The renewable natural gas (RNG) industry in the United States is showing promising signs of growth. As of 2019, the U.S. consumed 261 billion cubic feet (BCF) of RNG, primarily utilized by independent power producers, electric utilities, and various commercial and industrial entities. However, this figure represents only a small fraction of its potential. Research indicates that the U.S. could theoretically produce up to 2,200 BCF of RNG through anaerobic digestion alone, which would equate to about 11% of daily national natural gas consumption.
![$data['article']['post_image_alt']](https://images2.rextag.com/public/blog/295_Blog_Renewable Efforts Lag as Global Oil and Gas Demand Continues to Rise.jpg)
Recently, the progress toward an energy transition is hitting a snag. Sales of electric vehicles are decelerating, and the growth in wind and solar power needs to be keeping pace with expectations. To make matters more challenging, electricity prices are climbing when they were expected to fall. Amidst these setbacks, the oil and gas sectors are proving resilient. According to BP's latest energy outlook, not only are these energy mainstays here to stay, but their demand is expected to remain relatively high even after reaching a peak. Interestingly, BP forecasts that oil demand will reach its zenith next year, marking a critical moment in energy consumption trends. This isn't the first time BP has projected a peak in oil demand. Back in 2019, their review anticipated a decline in demand growth, but the prediction fell flat. Instead, oil demand surged to unprecedented levels following the end of the global pandemic lockdowns, defying previous forecasts and underscoring the enduring dominance of traditional energy sources in the global market.