Potential Climate Benefits Anticipated as Major Oil Companies Pursue Significant Consolidation
In a significant move, the largest US oil and gas companies are undergoing substantial consolidations, offering potential benefits for the climate.
A notable development includes the recent merger of Chesapeake Energy, a mid-sized Oklahoma-based natural gas producer, with Texas-based Southwestern Energy in a $7.4 billion all-stock transaction. This union creates the nation’s largest gas company, strategically positioning it for competition in the thriving Gulf Coast gas fields fueling the liquefied natural gas export boom.
The consolidation trend, spurred by investors securing profitable drilling sites amid a fossil-fuel demand decline, aims to ensure the companies’ viability in the evolving energy landscape, notes Matt Bernstein, a senior analyst at Rystad Energy.
Oil and Gas Giants Pivot to Acquisitions
Major oil and gas giants, flush with cash from recent profitable years, face shareholder pressure against reinvesting in new production. Companies like ExxonMobil and Chevron, anticipating dwindling resources and declining oil demand, are opting for acquisitions as the most cost-effective strategy to sustain market share.
Gas companies are similarly compelled to seek efficiencies amid falling prices following Russia’s invasion of Ukraine.
Significant recent deals include Exxon’s acquisition of Pioneer Natural Resources, Chevron’s purchase of Hess, and APA’s takeover of Callon Petroleum. This trend aims to reduce the sector’s carbon footprint by avoiding overproduction and price crashes associated with reactive smaller producers.
Larger post-merger companies are expected to have a steadier hand, a smaller production budget, and are better equipped to cut operational emissions, fostering sustainability.
The consolidation wave signals a recognition by Big Oil investors that the industry is approaching its sunset phase, according to Andrew Logan, Senior Director of Oil and Gas at sustainable finance advocacy group Ceres.
Oil and Gas Consolidation Raises Emission Concerns and Political Influence Issues
Consolidation in the oil and gas industry, driven by a focus on longevity and low operating costs, raises concerns about emissions as companies aim to prolong operations in the face of low oil prices.
The larger companies’ increased political influence, currently under scrutiny for potential antitrust violations, is criticised for obstructing climate legislation, warns Jeff Colgan of Brown University.
Big Oil’s Merger Wave Continues with Unprecedented Prices
The consolidation trend in Big Oil appears far from over. Several significant privately-owned companies in the Permian Basin, including the largest, Endeavor Energy, may become appealing targets.
While Diamondback Energy expresses a desire to be a buyer, not a target, the consolidation surge has driven prices to unprecedented levels.
Occidental’s recent acquisition of CrownRock saw a purchase price almost six times the expected 2024 earnings, well above typical acquisition multiples.
The trend is expected to shift towards “mergers of equals,” like the Chesapeake and Southwestern deal, with oil-focused activity, as gas prices remain low and impact acquisition budgets.
Shell Exits Nigeria, Selling Onshore Assets to Local Companies for $1.3 Billion
Shell is selling its onshore production business in Nigeria to local companies for $1.3 billion, ending years of accusations of human rights abuses and oil spills.
The sale transfers responsibility for infrastructure maintenance and cleaning up pollution in the Niger Delta to the local companies.