US oil and gas mergers up 57% in 2023

NEW YORK — Deal activity in the oil and gas sector rose 57 percent last year, according to a report released Tuesday, as energy companies increased spending on expansion, boosted by higher cash flow from earnings in previous years.

According to a report by Ernst & Young (EY), leading energy companies spent $49.2 billion on mergers and acquisitions in 2023, up from $31.4 billion in 2022. The increase was mainly driven by mega deals between integrated oil and gas companies.

According to EY forecasts, M&A activity will continue this year and in 2025, driven by further large transactions.

Oil and gas production spending also increased last year, with exploration and development spending rising 28 percent to $93.1 billion.

The increase in deal spending and reserve building marks a shift in strategy after years of focusing on shareholder returns rather than growth, which many companies used to attract back investors who had left the sector.

Oil and gas companies halved their spending on dividends and share buybacks last year, to $28.9 billion from a record $57.7 billion in 2022.

Sector-wide consolidation has spurred M&A activity, pushing total corporate spending to $142.3 billion, up 36 percent from 2022.

“In 2023, we started to see a push to consolidate the position of operators,” Bruce On, a partner in EY’s energy strategy and transactions group, said in an interview, noting a shift in strategy toward investing in core operations.

Cash-rich companies are focused on increasing efficiency through scale and leveraging existing operations, he added.

Their profits fell 55% to $83.9 billion in 2023, the report said, largely due to lower spot prices for West Texas Intermediate crude oil.

Chevron was the largest buyer of real estate in 2023, the report said, with total acquisition costs of $10.6 billion. That was largely due to a $6.3 billion deal to buy PDC Energy, a Denver-based oil exploration and production company.

ExxonMobil completed its $60 billion acquisition of Pioneer Natural Resources in May of this year. In October, Chevron announced a deal to buy oil producer Hess for $53 billion. However, the deal has been delayed until at least mid-2025 due to a legal dispute.