In a launch despatched to Rigzone by the Enverus group late Tuesday, the corporate’s subsidiary, Enverus Intelligence Analysis (EIR), revealed that U.S. upstream mergers and acquisitions (M&A) hit $17 billion in deal worth within the first quarter of 2025 and highlighted that this was the second finest begin to a 12 months since 2018.
“Nevertheless, exercise was disproportionately pushed by one firm, Diamondback Power, which accounted for practically 50 p.c of whole worth between its acquisition of Double Eagle IV and a dropdown of minerals to its affiliate Viper Power Companions,” EIR famous within the launch.
“Outdoors of Diamondback, consumers have been already feeling the stress of restricted acquisition alternatives and excessive asking costs for undeveloped drilling stock,” EIR added.
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“On prime of that, upstream firms will now need to navigate vital headwinds from falling oil and fairness values,” EIR warned.
Within the launch, EIR said that, previous to OPEC and tariffs creating waves in oil markets, pricing for high quality shale stock was a perpetually rising tide. It added that, traditionally, decrease crude costs have taken the wind out of the sails of upstream M&A.
“Going again to the beginning of 2014, oil costs have fallen by greater than 5 p.c quarter over quarter 17 instances,” EIR highlighted.
“In 11 of the quarters with materially decrease crude costs, deal exercise fell in comparison with the prior three months with a median decline in transacted deal worth of 30 p.c,” it identified.
“Asset values have additionally declined when crude costs moved 20 p.c or extra decrease 12 months over 12 months, with the worth of Permian acreage falling about one-third in 2015 in comparison with 2014 and shedding greater than half its worth in 2020 over 2019, based mostly on the typical worth per acre paid,” it continued.
“The one exception to the development over the past ten years of decrease oil resulting in decrease asset costs was 2023, when crude got here off its 2022 highs, however consumers continued to bid up the worth of undeveloped stock,” it went on to state.
EIR highlighted that, that 12 months, “oil nonetheless averaged a comparatively robust $78 per barrel although, totally different from a transfer in the direction of the decrease finish of its cyclical buying and selling vary that 2025 is witnessing”.
The corporate famous {that a} vital distinction between this downturn in oil and previous cycles is that publicly traded E&Ps are comparatively nicely positioned to resist decrease costs, no less than for this 12 months.
“After seeing a wave of reorganization beforehand when crude misplaced its footing, firms have saved debt ranges in test, been conservative about rising manufacturing and made even handed use of hedges,” EIR mentioned within the launch.
“That places most E&Ps in a superb place to keep up operations for the rest of 2025, though the problem they face will increase if low costs persist into 2026,” EIR warned.
Within the launch, Andrew Dittmar, principal analyst at EIR, mentioned, “if oil costs battle into 2026, public E&Ps are more likely to begin taking extra drastic actions together with slicing capital spending, promoting property, and even contemplating mergers with one other firm”.
Dittmar warned within the launch that upstream deal markets “are heading into probably the most difficult situations we’ve seen for the reason that first half of 2020”, declaring that “excessive asset costs and restricted alternatives are colliding with weakening crude”.
“Potential sellers are aware of the shortage of high-quality shale stock, making a reluctance to unload their property at a reduction,” Dittmar mentioned.
“Consumers however have been already stretched by M&A valuations and may’t afford to proceed to pay current costs now that oil costs are decrease. The standoff between these two teams round truthful asset pricing is about to sink M&A exercise,” he went on to state.
Dittmar famous within the launch that Permian land has been prioritized for acquisitions by firms as a result of the high-quality stock there can generate robust returns by way of the commodity worth cycle.
“It is usually the basin that retains giving with operators constantly including areas by testing new zones of the prolific basin’s stacked pay,” he mentioned.
Dittmar went on to state within the launch that volatility and decrease costs make offers powerful proper now however added that they’ll create alternatives for nimble consumers with a longer-term outlook.
“A short lived bottleneck in deal making will create a backlog of latent demand, and exercise ought to rebound as soon as costs begin to enhance,” he mentioned.
“Personal fairness corporations, for instance, have been elevating contemporary funds after promoting out over the previous couple of years and shall be able to hop again into the market as soon as costs stabilize,” he added.
“These corporations and the large-cap E&Ps with robust stability sheets are more likely to be the last word winners from the volatility,” he continued.
A possible shiny spot for M&A is pure gasoline with vital curiosity in including property with entry to Gulf Coast markets from a number of purchaser teams, together with worldwide consumers and personal capital, EIR said within the launch.
“Whereas near-term gasoline costs are additionally being challenged within the broad market selloff, future costs nonetheless look robust with a secular shift in demand from liquified pure gasoline export amenities and secondary demand from datacenters,” it added.
“That’s resulting in excessive demand for Haynesville pure gasoline property in comparison with the out there alternatives from personal sellers or non-core asset gross sales,” the corporate went on to state.
EIR additionally famous in its launch that, utilizing Enverus’ latest AI device, Investor Analytics, to summarize feedback about M&A markets from administration groups in current earnings calls “reveals firms have been already involved concerning the asking costs for offers and out there alternatives”.
“One of many challenges highlighted with out there alternatives is the combo of manufacturing in comparison with drilling areas, with most of the bigger out there acquisition alternatives skewed in the direction of current manufacturing moderately than undeveloped stock,” EIR mentioned.
“That could be a problem for firms that wish to use offers principally to increase general stock life,” it continued.
Rigzone has contacted the American Petroleum Institute (API), the White Home, and OPEC for touch upon EIR’s launch. On the time of writing, not one of the above have responded to Rigzone.
In a launch despatched to Rigzone by the Enverus group again in January, EIR revealed that 2024 “closed with $105 billion in U.S. upstream offers” including that this was “the third highest whole tracked by Enverus”.
EIR famous in that launch that final 12 months “trailed solely behind a record-setting $192 billion in 2023 and just below the $108 billion booked in 2014”. It added, nevertheless, that “exercise tumbled within the again half of the 12 months with $9.6 billion of upstream M&A recorded in 4Q24, the fourth consecutive decline in quarterly worth”.
Enverus describes itself as “probably the most trusted, energy-dedicated SaaS firm, with a platform constructed to create worth from generative AI, providing real-time entry to analytics, insights and benchmark price and income knowledge sourced from our partnerships to 95 p.c of U.S. vitality producers, and greater than 40,000 suppliers”.
EIR publishes energy-sector analysis targeted on the oil, pure gasoline, energy and renewable industries, the corporate’s newest launch highlighted.
To contact the creator, electronic mail andreas.exarheas@rigzone.com
