The oil and gas industry saw a significant uptick in dealmaking activity in 2023, with a 57 per cent increase in mergers and acquisitions compared to the previous year. This surge in activity was driven by higher cash flows from prior years, prompting energy companies to boost development spending. Ernst & Young reported that the top energy companies spent a total of $49.2 billion on acquisitions in 2023, up from $31.4 billion in 2022, highlighting the growth in mega deals among integrated oil and gas companies.
Looking ahead, M&A activity is expected to continue to rise in the coming years, with more mega deals on the horizon. Companies in the sector are also increasing their investments in tapping oil and gas reserves, with exploration and development expenditures growing by 28 per cent to reach $93.1 billion last year. This increase in spending signals a strategic shift for many firms, moving away from a focus on shareholder returns towards growth and expansion.
In response to the changing landscape, oil and gas companies have been scaling back spending on dividends and share repurchases, halving these payments to $28.9 billion in 2023 from a record $57.7 billion in 2022. The sector-wide consolidation has led to a surge in overall expenditures, reaching $142.3 billion, a 36 per cent increase from the previous year. The focus for many companies now is on consolidating their positions in the market and investing in core operations for long-term growth.
Bruce On, a partner at EY’s strategy and energy transactions group, noted a shift in strategy among operators in 2023 towards consolidation and investment in core operations. Companies are looking to drive efficiency through scale and leverage existing operations to maximize profits. Despite a 55 per cent decline in overall profits to $83.9 billion in 2023, primarily due to lower crude oil prices, companies in the sector are forging ahead with strategic investments and acquisitions.
Chevron emerged as the top buyer of properties in 2023, with total acquisition costs amounting to $10.6 billion. This significant investment was attributed in part to Chevron’s $6.3 billion deal to acquire Denver-based oil exploration and production company PDC Energy. On the other hand, Exxon Mobil completed a massive $60 billion acquisition of Pioneer Natural Resources in May, while Chevron announced a $53 billion agreement to purchase oil producer Hess in October. However, the completion of the latter deal has been delayed due to an ongoing legal dispute.
In conclusion, the oil and gas industry witnessed a notable increase in dealmaking activity in 2023, driven by higher cash flows and a strategic shift towards growth and expansion. M&A activity is expected to continue to rise in the coming years, with more mega deals on the horizon. Companies are focusing on consolidation, investment in core operations, and driving efficiency through scale to navigate the changing landscape and maximize profits. Despite challenges such as lower crude oil prices, companies are forging ahead with strategic acquisitions to secure their positions in the market and drive long-term growth.
