[Editor's note: A version of this story appears in the November 2020 issue of Oil and Gas Investor magazine. Subscribe to the magazine here.]

Future historians, we apologize if this timeline is a little messy. Most of the time, to be honest, we weren’t sure what was happening either. However, if it helps, a lookback to October 2020 may be of some use in getting your bearings in the Year of Horrible.

Of course, there was the pandemic, which by October had killed more than 220,000 people in the U.S. But just as emblematic of 2020 was NASA’s successful October launch of a $23 million space toilet.

Hopefully, this will put the duality of 2020 into context. In quiet moments, largely irrelevant things went A-OK while matters of consequence tended to crash and burn. For instance, the same day in October that NASA’s zero-gravity potty passed the quintessential go-no-go, the most powerful and protected man on earth contracted the coronavirus.

So it went in October. We had some impressive moments and some colossal weirdness. Purdue University engineers invented a tiny robot that can travel through a colon by doing backflips. Also, yes, Ireland’s Supreme Court ruled that Subway sandwich bread is technically more like a doughnut because of its high sugar content.

Alas, the oil and gas industry could also be viewed through this same split-screen of rationality and glazed-eyed madness.

In one frame, bankruptcies continued to unravel debt-laden E&Ps. Opposite that, massive megadeals fused together companies into Permian Basin behemoths. Around early October, large-scale M&A began to pick up with enormously expensive deals. Faster than you could say Sheffield-squared, Pioneer Natural Resources Co. agreed to merge with Parsley Energy Inc. for $7.6 billion, including assumption of debt.

With Parsley, Pioneer added three things that, ostensibly, Pioneer CEO Scott Sheffield has said he doesn’t like or need: Delaware Basin acreage, debt and inventory.

Indeed, both companies have deep inventories that could last up to a decade or more. But Sheffield said on a call about the deal that the transaction “is not about inventory.”

Sheffield said Pioneer pulled the trigger on the Parsley deal primarily due to the accretion, metrics and synergies the company offered. “It’s really about the financial metrics in regard to free cash flow, earnings [and] corporate level returns.”

He also said that Parsley’s Delaware wells are more profitable because the company owns 100% of its net revenue interests.

Sheffield’s larger thesis is that by the time the pandemic has subsided and oil prices recover, there will be a handful of survivors among independent E&Ps. These companies will have low leverage and market capitalizations of at least $10 billion. Pioneer’s pre-deal market cap was about $14 billion.

“I really think there’s only going to be three or four independents that are investable by shareholders,” he said, naming EOG Resources Inc., ConocoPhillips Co. and possibly Hess Corp. among them. “And we hope Pioneer is one of those.”

Still, Sheffield thinks the M&A engines will cool now.

“It seems like the best companies have been picked off in the last few weeks with Parsley and Concho and the other transactions,” he said. “I’ve always said leverage is going to prevent consolidation for the next couple of years.”

The Pioneer-Parsley merger was preceded by the Oct. 19 ConocoPhillips acquisition of Concho Resources Inc. In late September, Devon Energy Corp. and WPX Energy Inc. also said they were combining in an all-stock merger. In October, Chevron Corp. also wrapped up its merger with Noble Energy Inc. for $13 billion.

Asked on the call if there was a catalyst for the deals, Sheffield said each looked like clear-cut decisions. Noble had to sell because of too much debt. ConocoPhillips bought Concho because “they were weak in the Permian.” Devon and WPX needed scale and to de-lever.

“Our deal is probably the simplest of the four,” he said. “It’s very contiguous acreage, very accretive. It’s simplest from a shareholder perspective to evaluate.”

Sheffield said more mergers along the lines of Devon-WPX could continue as companies look to bring together balance sheets that need improvement.

Multibillion-dollar mergers make sense to CEOs. Acquisitions don’t.

Companies will have to wait on energy demand, oil prices, COVID-19 and potentially a vaccine for recovery. Sheffield said it’s possible Pioneer will eventually divest some of its current or newly acquired acreage.

Still, he said, acquisitions aren’t likely to happen. “There really is no market today.”

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