The U.S. energy industry is awash in M&A activity—a trend that shows no signs of slowing down anytime soon, a ConocoPhillips’ top executive said.

Oil and gas dealmaking activity, including corporate M&A and asset acquisitions, totaled $234 billion in 2023, according to an analysis by the U.S. Energy Information Administration.

That total included Exxon Mobil’s $64.5 billion acquisition of Permian Basin giant Pioneer Natural Resources and Chevron Corp.’s $60 billion acquisition of Hess Corp.

And notable deals have continued to get signed in the first quarter of 2024, including Diamondback Energy’s $26 billion takeout of private Permian player Endeavor Energy.

As oil- and gas-producing basins were crowded by independent E&Ps over time, the highest quality acreage for drilling has become scarcer, ConocoPhillips Chairman and CEO Ryan Lance said March 19 at the CERAWeek by S&P Global conference.

“You need scale, you need durability, you need inventory,” Lance said. “That’s why players come together.”

The need for high-quality acreage, with low breakeven costs to drill new wells, has driven the deluge of deal activity.

But E&Ps are also hunting for cost-cutting efficiencies through consolidation by reducing costs associated with inputs, oilfield services and administrative operations.

“[Consolidation] is a natural progression of maturity that goes through these basins,” Lance said. “And we’re not done—it’s going to continue.”

ConocoPhillips itself has not been a major acquirer so far in the current round of consolidation. Lance was, unsurprisingly, mum about ConocoPhillips’ own plans for future M&A, despite his prediction that corporate M&A would continue.

And if ConocoPhillips were to be a buyer, it’s unclear where the company would buy—given its large existing footprint across the Lower 48 and Alaska.

Some of the company’s biggest deals in recent years have centered around Permian Basin acreage. In January 2021, ConocoPhillips closed a $9.7 billion stock acquisition of Permian player Concho Resources Inc.

Later that year, ConocoPhillips carved out Shell’s Permian Basin assets in a $9.5 billion cash deal.

The company still sees major oil-production upside from the Permian: ConocoPhillips models suggest total U.S. crude oil output will grow between 300,000 bbl/d and 400,000 bbl/d this year, primarily coming out of the Permian, Lance said.

“We probably see the U.S. [production] plateauing later this decade,” Lance said, “but it’s going to plateau and stay there for a long time.”

U.S. crude output averaged 13.3 MMbbl/d in December 2023, passing the pre-pandemic high of roughly 13 MMbbl/d reached in November 2019.

“I think we’re going to pass through [14 MMbbl/d],” Lance said. “I don’t know if we’ll make it through [15 MMbbl/d], but we’re going to pass through 14 MMbbl/d.”

Willow watch

A year ago, during the 2023 CERAWeek conference, ConocoPhillips and energy industry pundits were pushing the Biden administration to approve the company’s new drilling project in the North Slope of Alaska.

The Biden administration ultimately signed off on the North Slope drilling project, called Willow, to the dismay of environmental and clean energy advocates.

Early construction on the project began last year and continues to progress, Lance said.

ConocoPhillips has about 1,000 employees mobilized in the North Slope this winter to support Willow’s construction, he said. The company is building ice roads and laying gravel to enable transportation to and from the assets.

Construction has also started on pipeline infrastructure in the area, Lance said.

“It will be four more winters of construction to get the facility up and started,” he said.

Comments