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NorthAmOil COMMENTARY NorthAmOil

Deals close as US industry

consolidation gains momentum

The closing of Chevron’s acquisition of Noble Energy comes as M&A activity in the

US energy industry appears to be picking up

US THE closing this week of the US’ largest energy the way forward for energy industry M&As, at
industry transaction this year – between Chev- least in the shorter term.
WHAT: ron and Noble Energy – comes amid signs that “In the current era of ‘resource abundance’,
Consolidation appears to mergers and acquisitions (M&As) are picking returns-based metrics underpin stock perfor-
be on the rise in the US up among oil and gas companies. Chevron mance,” investment bank Morgan Stanley said in
energy industry. announced on October 5 that it had closed its a note this week. “However, much of the indus-
acquisition of Noble – an all-stock deal that try remains overly fragmented, with too much
WHY: is valued at around $13bn in total, including overhead relative to the ‘call on shale’. As a result,
Producers are seeking to Noble’s debt of $8bn that the super-major has M&A has picked up again and, largely for the
achieve higher returns, taken on. first time in recent memory, been rewarded by
rather than growth, The transaction appears to form part of an the market,” it continued.
through mergers and uptick in oil and gas M&A activity in the US after “This has been most pronounced in the
acquisitions. a quiet start to the year. Indeed, only last week the [exploration and production] sector, where
second-largest deal of the third quarter of 2020 – transactions have taken a different form – low-
WHAT NEXT: Devon Energy’s merger with WPX Energy – was to no-premium, all-stock mergers and bolt-ons,”
More consolidation can announced. Morgan Stanley said. “Unlike prior transactions,
be expected in both the However, the drivers behind these deals deal logic de-emphasises growth and focuses
US and Canada. appear to be different from the forces behind on high grading portfolios while reducing cost
M&As in previous years. Whereas produc- structures, providing both parties transaction
ers were previously pursuing growth, includ- upside from the benefits of scale.”
ing through acquisitions, the focus now is on Chevron’s deal is notable, because unlike
improving returns and cost structures. And some of the other major transactions that
while this was what was holding back M&A have been announced recently, it is not solely
activity earlier this year, it increasingly looks like shale-focused, but included attractive interna-
companies are figuring out how to fit acquisi- tional assets. Indeed, the assets that are thought
tions into their current strategy. to have been Noble’s chief attraction are its gas
properties in the Eastern Mediterranean, off-
Changes shore Israel and Cyprus. However, Chevron has
Recent transactions – as illustrated by Chevron, also talked up the complementary nature of the
Devon and others – have tended to be all stock, domestic shale assets that it has taken ownership
at little to no premium. And analysts seem to be of through the deal, including properties in the
increasingly in agreement that this is going to be Permian and Denver-Julesburg (DJ) basins.

The majority of
the biggest deals
struck recently are
shale-focused.

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