Houston Chronicle by Jordan Blum July 18, 2019
By most measures, the U.S. oil and gas industry would appear ripe for consolidation. Rising costs, modest oil prices, too many small players and a drive for scale and efficiency should add up to a flurry of mergers and acquisitions.
Instead, M&A activity has almost ground to a halt after a flurry of deals last fall. In part, the collapse of oil prices at the end of 2018 cooled the fervor for acquisitions. But a more fundamental shift appears underway as an industry built on risk-taking increasingly steers clear of big gambles.
The shift is driven by Wall Street, where investors have lost patience with energy companies rolling the dice in pursuit of growth rather than restraining spending, maximizing profits and generating returns. The few companies that have moved forward with mergers and acquisitions — no matter how compelling the rationale — have been battered mercilessly by stock markets.
Despite winning plaudits for outmaneuvering Chevron in the David-and-Goliath bidding contest for Anadarko Petroleum, Occidental Petroleum of Houston has lost nearly 25 percent — or $12 billion — of its stock market value since its pursuit of The Woodlands company became public in April. Chesapeake Energy’s market value has plunged more than 50 percent since the Oklahoma company made the deal to acquire WildHorse Resource Development of Houston in late October. So has the value of the Canadian firm Encana Corp. which acquired the Houston oil and gas company Newfield Exploration at the beginning of November.
“They’ve all been punished, so I don’t think that gives anyone a warm and fuzzy feeling to go out and do a deal,†said Jennifer Rowland, an oil industry analyst with the financial services firm Edward Jones. “That (spending) discipline is what investors want to see. M&A runs the risk of destroying that message.â€
M&A wave turns to trickle
As the land rush in the booming Permian Basin largely ended after 2017, leaving few acres unspoken for, the expectation was that bigger companies would gobble smaller ones as they sought to expand holdings in the prolific West Texas shale field. Those expectations were met — for awhile.
The third quarter of 2018 saw about $33 billion in deal-making among oil and gas producers — the most active quarter since 2012, according to the Austin energy research firm Drillinginfo. That slowed to $19 billion in the fourth quarter, which is about average for the industry.
But following the 45 percent plunge in crude prices at the end of last year from about $76 a barrel to less than $43 — oil industry deals slowed to a trickle, just $1.6 billion in the first quarter, the lowest amount in a decade.
Activity rebounded the the second quarter with the $38 billion Oxy-Anadarko deal, but other than that, merger and acquisition activity was weak. Only $7.6 billion in other deals were made in the second quarter, which ended in June, and some of those top deals focused on the slowly rebounding deepwater Gulf of Mexico, rather than shale
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https://www.houstonchronicle.com/business/energy/article/Wall-Street-s-stern-discipline-cools-fervor-for-14104551.php
