In a strategic move to secure lower-cost reserves and brace for future industry shifts, the oil and gas sector embarked on a remarkable $250 billion buying spree in 2023. Seizing the opportunity presented by soaring stock prices, major players such as Exxon Mobil, Chevron Corp, and Occidental Petroleum engaged in acquisitions totaling $135 billion, positioning themselves as key players in an industry undergoing significant consolidation.
The focal point of this acquisition frenzy is the Permian Basin, the largest U.S. shale oil field in west Texas and New Mexico. With Exxon Mobil, Chevron, Occidental Petroleum, and ConocoPhillips collectively aiming to control about 58% of future production in the Permian Basin, each company has set ambitious goals to pump at least 1 million barrels per day from the oilfield. By the end of 2027, the Permian Basin is anticipated to produce a staggering 7 million daily barrels.
The wave of consolidation is expected to reshape the industry, impacting not only oil producers but also oilfield servicers and pipeline operators. The shift towards fewer, larger companies in control of significant reserves will likely grant them more power over pricing, squeezing the margins of service providers as existing contracts are renegotiated.
While the latest acquisitions were mostly facilitated through stock swaps, leveraging the strong share prices of acquirers, concerns loom regarding potential challenges for service companies and pipeline operators. Pipeline operators, in particular, are set to face a consolidation wave, compounded by fewer new oil and gas pipelines being approved and built.
The rationale behind these acquisitions lies in oil companies’ pursuit of untapped and lower-cost oil and gas reserves. Fueled by a surge in oil demand as global economies rebounded from the pandemic, major deals like Exxon’s $59.5 billion bid for Pioneer Natural Resources and Chevron’s $53 billion offer for Hess underscore the industry’s quest for strategic positioning.
The acquisitions reflect a pragmatic acknowledgment of the evolving energy landscape as companies grapple with the global shift towards renewable energy, electric vehicles, and increased energy efficiency. The consolidation trend has caught U.S. antitrust regulators’ attention, prompting additional scrutiny of Exxon and Chevron’s purchases.
While these moves enhance the longevity of fossil fuel businesses, they also present a potential clash with governments prioritizing a transition to cleaner energy sources. Amid expectations of stable global oil prices in 2024, ranging between $70 and $90 per barrel, the industry braces for a new era defined by consolidation, control, and challenges on the path to sustainable energy solutions.
