Oil and gas industry consolidation continued at a high clip in the first quarter with a geographic focus in the prolific Permian Basin.

But the drumroll of deals shows signs of slowing, with dealmaking activity losing momentum in the second quarter, according to an Enverus Intelligence Research report.

U.S. upstream dealmaking reached a record $51 billion during the first quarter, according to Enverus data.

The red-hot first-quarter activity comes after a particularly active year for U.S. upstream consolidation; Oil and gas dealmaking rose to a blockbuster $192 billion in 2023 by the firm’s calculations.

Just like last year, the Permian Basin—the nation’s top oil-producing region—continued to see the bulk of the dealmaking deluge.

Diamondback Energy kicked off 2024 with a $26 billion buyout of Endeavor Energy Resources LP, a family oil company owned by wildcatter Autry Stephens. The transaction represented the largest takeout of a private oil producer Enverus has ever tracked.

The deal brings together two of the largest landowners and oil producers in the heart of the Midland Basin. It will also vault Diamondback into a new class of massive independent E&Ps; analysts expect the combined company will boast a market value of over $50 billion.

“Deals at the start of 2024 were driven by the same factors that led to last year’s marathon of mergers, foremost among them a desire to lock up high-quality inventory when it is available,” said Andrew Dittmar, principal analyst at Enverus Intelligence Research.

“Most of that inventory is going to be found in the Permian, so it is unsurprising the prolific basin was yet again the primary driver for M&A within oil and gas,” he said.

In January, APA Corp., parent company of Apache Corp., unveiled a $4.5 billion acquisition of Callon Petroleum to give Apache greater running room in the Permian.

Before the Callon deal, APA was weighted much more toward the Midland Basin, where the company held about 197,000 net acres. Apache had around 84,000 net Delaware Basin acres before the deal.

Acquiring Callon gets Apache even greater running room in the Delaware: Callon held about 119,000 net Delaware acres across Ward, Reeves, Winkler and Loving counties, according to RRC data. Callon also had a smaller 26,000-acre footprint in the northern Midland Basin.

APA closed the Callon acquisition on April 1.

The Endeavor and Callon acquisitions, plus a smattering of smaller bolt-on transactions in the basin, gave the Permian a 60% share of total dealmaking during the quarter.

Large-scale Permian dealmaking in 2023 included Exxon Mobil’s $60 billion acquisition of Midland Basin juggernaut Pioneer Natural Resources, a combination that will cement Exxon Mobil as the top Permian producer.

Occidental Petroleum is also getting deeper in the Midland Basin through a $12 billion acquisition of private producer CrownRock LP.

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International flare

Premium prices and stiff competition for core Permian acreage have many operators searching elsewhere for M&A opportunities, including the Eagle Ford Shale and the Midcontinent.

The Eagle Ford in South Texas has generated a significant amount of interest by international players, including Canadian producer Baytex Energy, U.K.-based companies BP Plc (BPX Energy) and INEOS Group, Spanish producer Repsol and French energy company TotalEnergies.

Baytex last year closed a $2.2 billion acquisition of public E&P Ranger Oil, adding 162,000 net acres and 741 undrilled locations in the Eagle Ford’s crude oil window.

Baytex Energy USA has actively been drilling and bringing online new oil wells on the Ranger Oil asset in Lavaca County, Texas, this year, Texas Railroad Commission (RRC) records show.

U.K. chemical player INEOS Group dug deeper in the Eagle Ford with a $1.4 billion acquisition from Chesapeake last year that included acreage and production primarily in Dimmit, LaSalle and McMullen counties, Texas.

BPX Energy, BP’s subsidiary covering its U.S. Lower 48 onshore operations, is also actively bringing online new oil production from South Texas, per RRC records.

Madrid-based Repsol plans to invest more than $2 billion over the next three years to develop its U.S. unconventional assets in the Eagle Ford and Marcellus Shale.

Repsol’s U.S. unconventional volumes accounted for 36% of the Spanish producer’s total global output of 599,000 boe/d in 2023.

And French energy giant TotalEnergies is acquiring non-operated upstream interests in South Texas from San Antonio-based private Lewis Energy Group, CEO Patrick Pouyanné said during the CERAWeek by S&P Global conference in March.

The gas fields of East Texas and northern Louisiana are also attracting considerable investment from Japan, where oil, gas and other natural resources are scarce.

Tokyo Gas Co. acquired private East Texas producer Rockcliff Energy II for $2.7 billion late last year.

In 2019, Sabine Oil & Gas sold to a subsidiary of Osaka Gas Corp. for $610 million.

BPX also holds a large position in the Haynesville Shale.

“BP would be a potential candidate to expand in either the Haynesville or the Eagle Ford,” Dittmar said. “The company has maintained a presence in both plays and could look to boost U.S. unconventional exposure to keep pace with U.S. peers Exxon and Chevron.”

The SCOOP/STACK play in the Midcontinent is another area with higher ownership by private equity-backed E&Ps that could look to sell, Dittmar said.

Experts also anticipate an uptick in Appalachia consolidation as the price environment for natural gas producers improves heading into next year.

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Market slowdown

Following several particularly active quarters for oil and gas deals, the upstream M&A market slowed considerably in March and into the second quarter, Enverus said.

A variety of factors could be chilling the market, including a shrinking list of potential M&A targets left for operators still hunting for inorganic growth.

Many of the largest private E&Ps backed by institutional and private equity capital were plucked off the drawing board in the latest round of consolidation.

The list includes Vencer Energy, Tap Rock Resources, Hibernia Resources, Black Swan Operating, PetroLegacy Energy, Piedra Operating and Advance Energy Partners, which sold in deals with larger publics Civitas Resources, Ovintiv Inc., Vital Energy and Matador Resources.

Private Permian producers with considerable undrilled inventory remaining include Double Eagle IV, Summit Petroleum and BTA Oil Producers.

Enverus estimates that Double Eagle IV holds an attractive inventory of over 300 gross operated drilling locations across the core of the Midland Basin.

“That puts [Double Eagle IV] in a nearly unique scale among the private equity-backed privates that are left in the Permian,” Dittmar recently told Hart Energy.

Given the shortage of private acquisition opportunities left, Enverus expects public consolidation “to be the most likely route” for M&A markets going forward.

Other notable examples of public-public tie-ups in the Permian include Permian Resources’ $4.5 billion acquisition of Earthstone Energy last year and the APA-Callon deal.

Public consolidation is also happening outside of the Permian. Haynesville Shale and Appalachia gas producers Chesapeake Energy and Southwestern Energy are combining in a $7.4 billion merger.

The Chesapeake-Southwestern deal is less about improving the combined company’s inventory runway and more about boosting exposure to expanding U.S. LNG export capacity, Enverus said.

Chord Energy and Enerplus Corp. are also combining in a $4 billion cash-and-stock deal to become one of the biggest players in the Williston Basin of North Dakota and Montana.

But deals are also being slowed down by increasing antitrust scrutiny by the Federal Trade Commission.

The FTC has requested additional information regarding the largest energy industry transactions signed last year—Exxon’s Pioneer acquisition, the Chesapeake-Southwestern merger and Chevron’s $53 billion acquisition of rival Hess Corp.

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