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It's been a strange year for upstream M&A. We tend to expect more M&A when commodity prices are high. But high commodity prices in 2022 arrived in a volatile tangle of geopolitics, inflation, interest rate rises and fiscal instability. None of which is conducive to agreeing, financing and executing oil and gas transactions.
M&A activity in 2023 will take place against the same backdrop, at least initially. As long as the macro factors continue to remain febrile, there will be headwinds.
In Global upstream M&A: 3 things to look for in 2023, we (mostly) put the short-term macro forecasting to one side and focus on the industry in the year ahead, drawing on unique insight from Lens Upstream.
Fill in the form on this page to read the full report, or read on for an introduction to the three big questions it tackles.
Will US Independents spark an M&A revival – and what would that revival look like?
The US Independents are the group that underpins most US M&A activity, most of the time. They certainly have the capacity to boost M&A in 2023. But do they have the appetite?
Their financial strength is clear. Five US Independents in our coverage have net cash positive balance sheets (including EOG), while another five have gearing below 15% (including ConocoPhillips and Pioneer). And financial health continues to improve. If WTI averages US$84/bbl next year – in line with our forecast – we estimate that almost every company in a peer group of 37 US Independents could be in a position to buy. If they want to.
Financial strength doesn’t in itself constitute M&A dry powder. In a rising interest rate and volatile price environment, target gearing ratios have moved structurally lower.
Get our view of the drivers of deals, our assessment of the appetite to buy and the current US deal pipeline, in the full report.
Companies who do decide to internationalise will most likely start close to home.
Will European Independents maintain their ‘all-in’ strategy or seek to diversify overseas?
Many large European Independents (public and private) are wholly or mostly exposed to a single country. AkerBP and Var Energi are fully focused on Norway, for example, just as the UK makes up all of NEO and Ithaca’s portfolios.
These companies have been major acquirers in recent years. It’s got them to where they are – and there are probably more deals to come from them.
But should they – and the many other producers which also have single-country exposure – continue with this all-in strategy? Country risk and the potential to access new opportunities could drive them to spread their wings in 2023.
How will this play out? Read our view in the full report.
Are acquisitions back on the table for the Majors?
The Majors have been net sellers in upstream since H2 2020, when Chevron acquired Noble – the last multi-billion-dollar upstream acquisition by any Major. TotalEnergies’ 2019 acquisition of Occidental’s Mozambique assets was the last purchase of this size by a Euro Major.
Could that change in 2023? New energies will continue to draw the majority of capital for acquisitions. That path has already been established for the Euro Majors in particular, with renewables M&A scaling up in 2022. That trend will continue.
But is there more scope for upstream acquisitions than we have seen over the last few years? Read Global upstream M&A: 3 things to look for in 2023 for our take on the year ahead.