NorthAmOil: New era of M&As ushers in ‘Shale 4.0’

Recent mega-deals in US shale are moving the needle in terms of the scale of M&As.  Rystad says that the new “upper-echelon tier” of Permian exploration and production (E&P) players – following Exxon’s acquisition of shale driller Pioneer Natural Resources – ushers in Shale 4.0, a new era of unprecedented dealmaking for the shale sector.

Shareholders may remain crucial, with years of discipline under the ‘Shale 3.0’ business model, which saw E&Ps not spending beyond their means. But now an attitude shift of mergers also highlights the core concern – gaining inventory scale for the long-run, the key theme under the new ‘Shale 4.0’ model, said Rystad Energy.

“The quest for scale has become paramount for all operators, as the industry grapples with the acknowledgment that, while commercial inventory is still plentiful, the industry is maturing, and operators can position themselves for the long-run by owning the most undeveloped acreage over the most commercial resources,” said Rystad.

Indeed top six inventory holders in the Permian Basin are set to own 62% of oil reserves, reports Rystad in a note from senior analyst, Matthew Bernstein.

This follows the recent news that Diamondback Energy is to acquire shale rival Endeavor Energy Resources, the largest remaining independent Permian producer, in a $26bn cash-and stock-deal.

The combined company will become the third largest operator in the Permian, the western hemisphere’s most active oil basin, after recent major transactions were announced by ExxonMobil and Chevron.

Following Occidental’s purchase in mid-December of CrownRock for a total of around $12bn, it became clear that public producers were willing to pay top dollar for private E&P acquisitions that could both change total inventory scale and position them for the long run in the Permian’s core.