Oil and gas dealmaking peaks in Q4 as pandemic spurs consolidation

Deal making among oil and gas producers was at its highest for the year in the fourth quarter of 2020 as the pandemic-driven fallout in commodity prices spurred a wave of consolidation between explorers looking to scale up and drive down costs, a report from analytics firm Enverus said.

Oil and gas producers made deals worth $27.1 billion in the quarter, up from $21 billion in the third, helped by three multi-billion dollar acquisitions in the prolific Permian basin of West Texas and New Mexico.

ConocoPhillips acquired Concho Resources for $13.3 billion, the biggest pure shale acquisition by any company since 2011, topping the list. It was followed by Pioneer Natural Resources’ deal to buy Parsley Energy for $7.6 billion.

Diamondback Energy also took over publicly-traded QEP Resources and private equity-backed Guidon Operating for just over $3 billion.

Data from Enervus also showed deal flow, or the number of deals announced, was only 140 in 2020. It was the lowest since at least 2006, as a number of buyers focused on preserving cash to pay down debt or returning capital to shareholders.

According to Enervus, corporate consolidation, especially among small and mid-size companies that require scale, and non-core asset divestments could be seen in 2021.

“The limiting factor for consolidation in 2021 will be the number of attractive merger partners left at the end of a very active year,” Enervus M&A analyst Andrew Dittmar said.

Companies that went through a Chapter 11 restructuring in 2020 could also emerge as potential merger partners now that debt loads are right-sized, Enervus added.

Source: Reuters