(Reuters) – The pace of upstream U.S. public-to-public mergers could slow from the recent average of five per year in 2025, along with a decline in the size of deals, according to a report by energy analytics firm Enverus that was released on Tuesday.
The consolidation trend in the US energy sector, which led to $250 billion in deals in 2023, has continued into 2024 and is expected to continue this year as companies look to increase their oil and gas reserves.
The wave of deals has emptied pockets and seen fewer companies listed, while some announced combinations have been delayed, either by antitrust regulations or contract arbitration challenges.
The need for scale would motivate small and mid-sized E&Ps (upstream companies) to explore mergers and acquisitions, even as deal sizes may shrink and breakevens of acquired inventory rise, Enverus analysts said in the report.
“The pool of available remaining private equity assets is largely smaller, higher on the cost curve, or both,” they said.
Cost-saving measures such as long laterals – the horizontal portion of an oil well – will be important in improving the economics of the land available for drilling, with a breakeven of almost $5 per barrel per mile.
The longer laterals would be critical in reducing well costs, as they will in 2024, with broader utilization of three-mile laterals and some four-mile wells by select operators, the report said.
It also expects well costs to remain flat through 2025, following a nearly 10% decline in spending per meter of wells last year.
Producers expanded their wells to five kilometers in length in August 2024, boosting production by fracking multiple wells at once, according to industry experts and company executives.
“We expect rigs and completion crews to continue to make efficiency gains through 2025, which will put downward pressure on overall equipment utilization,” the Enverus analysts said. Most of the activity would end up with government companies that favor high-end drilling rigs and electric fracking equipment.
Overall, analysts at Enverus Intelligence Research expect prices to average $80 per barrel, assuming OPEC+ will only reverse cuts if they don’t put further pressure on prices, and demand from China remains flat through 2025.
