A desire to consolidate and take advantage of relatively buoyant commodity prices is driving deals

Dealmaking within the US O&G sector remained largely in line with H1 2021's strong activity, despite the ongoing challenges facing the industry. A total of 85 deals valued at US$44.2 billion were announced in the sector in H1— down 3 percent in value year-on-year, even as the number of deals ticked up by 9 percent.

This stable deal activity is in contrast to overall M&A activity in the US, which saw drops of 21 percent and 29 percent in terms of volume and value, respectively, over the same period.

Consolidation on the rise

The value of 85 deals targeting the US oil & gas sector in H1 2022

The Centennial/Colgate merger will create the largest pure-play exploration and production Delaware Basin operator in West Texas and Southeast New Mexico. Oasis's acquisition of Whiting, meanwhile, significantly expands its presence in the core acreage of the Williston Basin, which stretches across western North Dakota and eastern Montana.

Consolidation was a major feature of the US oil & gas market in H1, as smaller companies found it harder to survive amid challenging market conditions. Two of the five largest deals of the year: Centennial's US$3.9 billion acquisition of Colgate Energy, and Oasis Petroleum's US$2.8 billion purchase of Whiting Petroleum, highlight the need to gain scale in a historically fragmented market.

The US domestic oil & gas market remains a fragmented market, and with volatility in energy commodity prices cooling down, further transactions are likely to take place in H2, with the potential for larger deals.

Take-private deals secure value

9% Percentage increase in deal value compared to H1 2021

The largest deal to take place in the sector was the Hamm family's proposed purchase of its remaining stake in Continental Resources, in a bid to take the US shale producer private. The move comes as US shale companies are reporting record cash flows after the war in Ukraine pushed up global oil prices. Similar deals could follow if companies do not feel that the public markets accurately reflect their current value.

Greater stability brings confidence

While not completely immune to current economic volatility, energy businesses tend to react differently to downturns compared to the general M&A market. Demand for energy is usually resilient during downturns, and the steady returns energy assets offer are especially attractive to investors when growth is sluggish.

While there was some volatility in commodity prices toward the start of the year surrounding the impact of geopolitical conflict, relatively stable commodity prices are bringing a greater sense of predictability to deal pricing. This ability to price deals, despite the uncertain geopolitical and economic backdrop, could set the scene for strong levels of M&A activity over the remaining half of the year.

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