M&A Q2 spending significantly higher than five-year average in upstream sector

| By eoin-coyne

Total upstream oil and gas M&A spending during the second quarter was 13.5% higher than the five-year quarterly average, with 79% of deal activity focused on assets in the United States and Canada.

According to the latest Evaluate Energy analysis, $36 billion in new deals were announced worldwide – the highest quarterly spend since 2021. For more on our M&A database, click here.

Key observations:

  • Eight of the top 10 deals by value were oil-focused acquisitions
  • Payback multiples are low: median EBITDA multiples were 2.7x compared to 7x over the past decade.
    • This suggests the market has little faith in the current high earnings environment continuing in the medium- to long-term.
  • High value corporate acquisitions by publicly listed companies are becoming increasingly cash-based
  • 79% of total deal activity by value was focused on U.S. and Canadian assets
    • Chevron acquisition of PDC Energy was the largest deal (see below)
    • TotalEnergies exited the Canadian oilsands as ConocoPhillips’ exercised its pre-emptive right to take the remaining 50% stake in Surmont for US$3 billion
    • TotalEnergies had originally agreed the full sale of its TotalEnergies EP Canada subsidiary to Suncor, which will now proceed for US$1.1 billion without Surmont
  • 1.5 million boe/d changed hands this quarter, the highest volume since 2020

This activity was against a backdrop of falling oil and gas prices:

  • WTI fell for a fourth consecutive quarter and averaged $73.82/bbl
  • Henry Hub averaged $2.05/mcf, a 20% decline on Q1 2023

Share premiums stay low in the U.S.

Chevron’s acquisition of PDC in the DJ Basin continued the post-pandemic trend (post-Q1 2020) of lower share premiums being paid as part of large corporate mergers.

The $7.6 billion deal represents a share premium of just 11% – higher than premiums seen in 2020, but still lower than historical premiums for equivalent deals.

Share premium analysis: U.S. corporate mergers 2017 – 2023 

Top 5 mergers pre- and post-Q1 2020

Chevron’s history in the DJ Basin

The DJ Basin is now one of Chevron’s main areas of domestic U.S. operations.

It had originally targeted the basin with a bid to acquire Anadarko Petroleum in 2019, but lost out to Occidental in a bidding war that saw Anadarko acquired at a share premium of 64%* based on prices at the time of Chevron’s initial bid.

Since then and since the pandemic, Chevron has followed up an 8% premium acquisition of Noble Energy with this 11% PDC deal to now hold more acres in the DJ Basin than it would have done via any deal to acquire Anadarko.

Top 10 upstream deals worldwide – Q2 2023

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below. 

*Premium measured using Anadarko share price on the day before Chevron’s original offer and the eventual deal value of Occidental’s completed takeover bid.

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