M&A Wave Swells in US Shale

A wave of M&A has started to roll across the US shale oil patch, fueled by record cash flows and a need to reload inventories of top-tier drilling acreage. Concerns that financial returns have likely peaked — owing to a 40% drop in oil prices since mid-2022 and 75% collapse in gas prices since August — are also driving some companies to the bargaining table, as consolidation offers cost-cutting opportunities that can help them stay in investors’ good graces. The trend doesn’t mean shale has abandoned capital discipline. Rather, it reflects an effort to build businesses that can generate longer-lasting, resilient cash returns under volatile prices. Canada’s Baytex this week announced the acquisition of Eagle Ford pure-player Ranger Oil for US$2.5 billion in a cash-and-stock deal, including debt, that offered a 7.4% premium to Ranger shareholders. Baytex CEO Eric Greager said the impetus was “building scale and a more durable business with a lower break-even” oil price. Perks include 12-15 years of “quality oil-weighted” drilling opportunities from Ranger’s 741 undrilled prospects, a near-doubling of Baytex’s free cash flow, and the ability for Baytex to initiate a dividend after the deal closes. Other significant US shale deals in recent weeks include Ineos’ $1.4 billion acquisition of Eagle Ford assets from Chesapeake Energy and Matador Resources’ $1.6 billion purchase of privately held Advance Energy, a Permian Basin player. Vitol’s upstream subsidiary VTX Energy also announced a set of deals in the Permian for an undisclosed sum earlier this year.