A wave of dealmaking in America’s shale patch is intensifying, wiping out weak players and leaving the once-fractured sector in the hands of a new breed of “super independents”. More than $30bn in oil and gas deals were done in the second quarter and analysts and bankers expect the run of dealmaking to continue. Investors are pushing shale producers to bulk up in the hopes that larger players will rein in rampant supply growth, deliver better returns and clean up the industry’s operations amid mounting environmental pressures.
“We have way too many players in the sector that are way too undercapitalized and too small to drive the efficiencies and returns that investors need, so we will continue to see consolidation happen,” said Stephen Trauber, a vice-chair and veteran energy banker at Citi. ‘If you’re below a $10bn market cap, it is going to be hard for you to sustain yourself long term,” he added.
Only a handful of shale specialists are in that $10bn club today, including larger producers ConocoPhillips, EOG Resources and Pioneer Natural Resources. Below them is a still deeply fractured corporate landscape with dozens of smaller private and publicly held producers that have carved up the country’s largest oilfields, resulting, analysts say, in chronic oversupply and high costs.
The $33bn in deals in the second quarter was the highest quarterly total since the second quarter of 2019, when Occidental Petroleum bought Anadarko for $55bn, according to data from Enverus, an industry consultancy. There has been more than $85bn in deals over the past 12 months as the sector has emerged from a pandemic-driven crash that decimated its finances.