Why the mergers and acquisitions frenzy in the energy sector may not be over yet

The energy sector has seen a surge in mergers and acquisitions (M&A), with two major deals taking place this week alone. ConocoPhillips (COP) has agreed to acquire Marathon Oil (MRO), while Hess (HES) shareholders have approved the sale of Chevron (CVX). These transactions sparked speculation about the future of the energy sector.

Yahoo Finance’s Ines Ferré dives into the details, offering insight into the factors behind rising M&A activity and how this trend will continue throughout the year.

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This post was written by Angel Smith

Video transcription

M&A in the energy sector will be in the spotlight this week as Conocophillips agrees to acquire Marathon Oil and shareholders approve its merger with Chevron.

According to the U.S. Energy Information Administration, the number of transactions in the energy sector increased in 2023, reaching the highest level in more than a decade.

But where are we in 2024 for more on this.

Let’s bring a Yahoo financial reporter here and investigate all this.

Yes, Brad and the M and A wave really picked up steam in 2023, and it didn’t stop at the 230+ billion Explorer and Manufacturer deals started last year by Chevron and Exxon Mobil, chasing Hess and Pioneer, respectively.

These two transactions were the largest since Occidental Petroleum.

But Anna Darko in 2019, and speaking of Western oil, the Warren Buffett-backed oil producer announced the acquisition of privately held Crown Rock last year, and the most recent deal, as you just mentioned, was announced yesterday with Conocophillips and Marathon Oil.

In fact, last year saw the industry record the most M and A deals since 2012, and the reason why analysts say is really simple.

This is because there has been a lack of investment in the industry over the past decade amid political and regulatory uncertainty about the future of oil and gas, and pressure to transition to renewable energy sources has also created a reluctance to invest.

Companies are making up for lost time.

As one analyst put it, by buying stocks for further growth over the last few years, it was quite obvious that fossil fuels would remain in the market longer than previously expected.

Oil and gas production hit a new record in 2023 after oil prices surged the previous year following Russia’s invasion of Ukraine.

The oil and gas industry has positioned itself as a supplier of fuels such as natural gas needed to power rapidly expanding AI data centers for energy transition and production recovery.

Now, industry representatives surveyed by the Dallas Fed in December overwhelmingly said they expect more mergers over the next two years.

Deals worth $50-60 billion are mostly moving forward, but there are smaller mergers to watch out for.

As one Yahoo Finance analyst said, no one wants to be too small to compete with large companies.