After enduring a dramatic loss of demand caused by the Covid pandemic and the hard push to abandon fossil fuels, our industry has emerged stronger and more focused on supplying global markets with reasonably priced energy while reducing carbon output. The renewed focus by the U.S. majors on acquiring and developing oil and gas reserves has set the stage for energy production for decades to come. These unprecedented M&A deals strongly suggest that oil is here to stay and that more consolidation and new global investments will occur in 2024.
Permian basin M&A activity booming. The value of U.S. oil and gas mergers and acquisitions in the Permian basin during 2023 reached a record of approximately $100 billion (Wood Mackenzie). These deals include Exxon Mobil's $60-billion offer for Pioneer Natural Resources and Chevron's $53-billion agreement for Hess. Other deals include Permian Resources' $4.5-billion bid for Earthstone Energy and Ovintiv's $4.3-billion buyout of three other Permian acquisitions. Civitas Resources spent a combined $4.7 billion for two private equity-owned properties in the Permian—Tap Rock Resources and Hibernia Energy III.
Oxy me, too. Occidental Petroleum agreed to acquire CrownRock in a cash-and-stock deal valued at $12.0 billion, including the assumption of $1.2 billion in debt. The transaction is expected to close in the first quarter of 2024, subject to regulatory approvals. The company has lined up $10 billion of committed bridge financing through Bank of America, which should be replaced with more permanent financing, including term loans and bonds. Occidental plans to issue $1.7 billion in new shares to fund the deal.
CrownRock’s operations complement assets Occidental acquired through its massive 2019 takeover of Anadarko Petroleum. To secure that deal, CEO Vicki Hollub secured a $10-billion capital investment from Warren Buffett’s Berkshire Hathaway, which is now Oxy’s biggest shareholder. Occidental’s agreement with CrownRock comes as executives face pressure from investors to keep buybacks and dividends flowing, even as the U.S. shale sector matures and growth slows. “Though the $12 billion price is on the higher end of our analysis, the region’s large acreage blocks offer scarcity value,” said Bloomberg analysists Evan Lee and Vincent G. Piazza.
The Oxy/CrownRock deal will create the sixth company in the lower 48 capable of producing 1 MMboed. The others include Chevron, EOG, ExxonMobil, EQT and ConocoPhillips. “This transaction cements an absolute banner year in Permian acquisitions and divestments spend. Coupled with other major 2023 deals, it solidifies Permian scale and multi-decade longevity as a “must have” asset for U.S. majors and super-independents," said Wood Mackenzie V.P. Robert Clarke.
M&A down under. Woodside Energy Group is in talks with Santos on a potential multi-billion-dollar merger, opening the door for the creation of an Australian gas export superpower. Although talks are at an early stage, the latest news follows an earlier report by the Australian Financial Review that said the companies were exploring a deal. Woodside has a market capitalization of $37.3 billion, while Santos’s market cap is $15.1 billion. Both companies have seen their shares slide in recent months, falling at least 15% from an August peak.
The possible merger of Woodside and Santos is being driven by windfall profits from last year’s spike in energy prices and the need to invest that capital to further grow their respective business units. The Santos-Woodside discussions also illustrate the growing importance of LNG to the industry, as authorities expect the fuel to be needed for decades in Asia as part of the energy transition. Woodside is already the top Australian exporter, and a merger would create one of the world’s biggest producers of the fuel while satisfying shareholder pressure for Santos to become a pure LNG business.
Woodside CEO Meg O’Neill has been aggressive in expanding the company’s role in LNG, betting it will be needed for decades in Asia as part of the energy transition. Woodside absorbed BHP Group’s oil and gas portfolio last year, and recently signed a deal to buy LNG from an export project in Mexico. Santos has a stake in an LNG export project in Papua New Guinea and operates two facilities in Australia. The firm is developing Barossa gas field off the coast of the Northern Territory.
Institutional shareholder L1 Capital suggested splitting Santos’ assets “to unlock the inherent value.” It said the company has lagged peers, because investors seeking exposure to LNG markets have chosen alternative stocks, leaving the Australian producer “under-appreciated.” Selling its oil and gas assets in Australia to become a pure-play LNG company would boost shares by up to 40%, a spokesperson from L1 Capital concluded.
Gulf of Mexico back in vogue. Shell announced the final investment decision for a phased campaign to deliver three wells in the Great White unit, intended to increase crude output at its deepwater Perdido spar in the U.S. Gulf of Mexico, Fig. 1. After completion of this campaign in April 2025, these wells collectively are expected to produce up to 22,000 boed at peak rates. Perdido’s production capacity is 125,000 boed at peak rates.
This new investment underscores Shell’s long-term commitment to the U.S. Gulf of Mexico, where production is essential to ensuring a reliable and secure supply of energy. Additionally, production in the U.S. Gulf of Mexico is among the lowest greenhouse gas intensities in the world for producing oil. “Shell is the leading operator in the U.S. Gulf of Mexico, and we continue to find ways to build on that position,” said Shell EVP Rich Howe. “By expanding our Perdido development, we continue to unlock the greatest value from this exceptional resource.”
Shell Sparta GOM project. Shell also announced the final investment decision for its Sparta project, a deepwater development in the U.S. Gulf of Mexico that represents a competitive approach to simplifying and replicating projects. The asset is owned by Shell Offshore (51% operator) and Equinor Gulf of Mexico (49%) and is expected to reach a peak production of 90,000 boed. It currently has an estimated, discovered recoverable resource of 244 MMboe. Sparta will be Shell’s 15th deepwater host in the Gulf of Mexico and is currently scheduled to begin production in 2028.
Sparta showcases Shell’s cost-efficient development approach through standardized, simplified host designs, first utilized at the Vito development and later replicated at the Whale development. An enhanced replication of Vito and Whale, Sparta replicates about 95% of Whale’s hull and 85% of Whale’s topsides.
Talk of world-ending scenario reeks of desperation. The COP28 UAE climate summit ended Dec. 12 with a compromise deal that called for a transition away from fossil fuels. The stronger term, phase-out, was backed by 130 of the 198 countries negotiating in Dubai, but was blocked by petrostates, including Saudi Arabia. Climate experts say lack of an unambiguous statement is “tragedy for the planet and our future.” The failure of COP28 to call for a phase-out of fossil fuels is “devastating” and “dangerous,” given the urgent need for action to tackle the climate crisis, scientists have said. One called it a “tragedy for the planet and our future,” while another said it was the “dream outcome” for the fossil fuel industry (The Guardian).
Accepting/defining energy reality. Most oil executives dismiss the IEA’s 2030’s peak oil projections, saying the world will need hydrocarbons for many decades to come. “I personally disagree, the majors disagree, OPEC disagrees and everybody that produces oil and gas disagrees,” said Pioneer CEO Scott Sheffield, Fig. 2. The IEA misunderstands the demand for our products, Sheffield added. Who is going to replace jet fuel? Who is going to replace petrochemicals? What alternatives will replace that? Sheffield asked.
Sheffield’s position was reiterated in a statement by Saudi Aramco CEO Amin Nasser (Fig. 3) at the World Petroleum Congress, held in Calgary the week of September 18. “The IEA’s prediction that oil consumption will peak this decade and grow at a slower rate in the near term as the energy transition gathers pace has been proven to be unrealistic. This notion is also wilting under scrutiny, because it’s mostly being driven by policies rather than the proven combination of markets, competitive economics and technology. There is no quick fix for the energy transition,” Nasser concluded. WO
CRAIG.FLEMING@WORLDOIL.COM