XOM - Discipline Drives Energy Deals

2024-03-28 02:49:08 ET

Summary

• The energy sector is undergoing a wave of consolidation, with approximately $210 billion in exploration and production mergers and acquisitions over the last year.
• Energy exploration and production companies are benefiting from increased capital discipline and a focus on free cash flow, reducing the volatility and commodity risk of their business models.
• The consolidation within the industry benefits energy investors as companies focus on deeper inventory levels and a higher percentage of low-cost projects to support cash returns to shareholders.

By Adam Meyers

Energy Dry Powder Spurs M&A

The beginning of 2024 has been anything but quiet within the energy sector. While 2023’s recessionary fears, lackluster demand from China, and range-bound oil prices produced subdued performance compared to 2022’s banner year, in which the sector’s 65% return made it the best performer in the S&P 500, the past few months have seen several high-profile acquisitions within the exploration and production (E&P) industry. These deals, including Diamondback Energy’s ( FANG ) acquisition of Endeavor Energy Resources, Exxon Mobil ( XOM ) buying Pioneer Natural Resources ( PXD ), and Chesapeake Energy ( CHK ) combining with Southwestern Energy ( SWN ), are merely the latest in the $210 billion worth of M&A in upstream energy producers over the past year — roughly 7x the total amount of M&A in the sector in 2022....

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