Benzinga - by Neil Dennis, Benzinga Staff Writer.
The oil and gas production sector has already seen some mega deals in 2023 and merger and acquisition (M&A) activity is expected to continue into 2024 as the oil majors seek new growth opportunities.
Exxon Mobil (NYSE:XOM) announced in October an agreement to acquire Pioneer Natural Resources (NYSE:PXD) in an all-stock transaction worth nearly $60 billion. Later in the same month Chevron (NYSE:CVX) announced a similar stock deal to buy Hess (NYSE:HES) for $53 billion.
Market analysts see the two similar-sized deals as a doubling down on bets that fossil fuels — particularly oil and gas — will remain the predominant sources of energy for decades to come, despite the global push towards renewable energy sources.
There will be a slow and steady realization that the energy transition will be “a messy, non-linear one,” Biraj Borkhataria, analyst at RBC Capital Markets predicts. Oil and gas demand “is likely to remain more resilient than anticipated a few years ago.”
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Will Oil And Gas Rivals Follow?
It’s a tough choice the oil majors have to make, and activity in M&A in the coming months should help answer that question.
In contrast, European majors such as BP (NYSE:BP) and TotalEnergies (NYSE:TTE) have invested in the green transition at a greater pace than Exxon and Chevron. But RBC believes European companies will inevitably become more active in the fossil fuels space.
BP Spin-Off Possibility
BPX“In order to allow for US-centric acquisition currency, we think BP may look to consider separately listing its BPX segment in the coming years, creating a platform for growth and allowing for the entity to be a consolidator in its chosen basins,” he said.
He added: “Both Super-Majors in the US are in the process of acquiring companies to the tune of $60bn each, and thus naturally, we expect both to have elevated disposals going forwards as they look to high-grade their portfolios.”
For Shell (NYSE:SHEL), RBC expects the U.K.’s largest oil and gas company to focus its M&A strategy on Canada, where it already has a significant footprint.
“Shell may look to grow its Canadian gas footprint in order to have greater integration through the value chain for its liquified natural gas (LNG) business,” Borkhataria said.
To date, U.S. upstream M&A has totaled $181 billion — higher than the five-year average of $153 billion.
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