Big Oil Enters 2024 Strengthened By U.S. Industry Consolidation

• The oil and gas industry underwent a significant $250Bn buying spree in 2023, marked by major acquisitions from Exxon Mobil, Chevron Corp, Occidental Petroleum, and ConocoPhillips. The focus was on securing lower-cost reserves, with the Permian Basin emerging as a key target, positioning these companies to control around 58% of future production in the region.
• The acquiring companies aim to collectively pump at least 1 million barrels per day from the Permian Basin, which is expected to produce 7 million barrels per day by the end of 2027. A surge in oil demand, driven by the recovery from the pandemic downturn, has fueled optimism among acquirers.
• The consolidation trend is expected to have spillover effects on oilfield service companies and pipeline operators. With fewer customers holding more pricing power, service companies may face squeezed margins as contracts are renegotiated.
• Pipeline operators are experiencing their consolidation wave, with fewer new oil and gas pipes being approved and built. However, expansions to existing lines out of the Permian Basin will provide some relief.
• Acquisitions in 2023 were largely facilitated by strong stock prices, reducing the need for significant cash outlays. Rising interest rates made stock swaps more attractive than funding new renewable energy projects.
• However, the consolidation has prompted regulatory scrutiny, with U.S. antitrust regulators seeking additional information from Exxon and Chevron. The companies express confidence in approval but acknowledge the potential tension with governments prioritizing a shift to clean energy sources.

(Source: Reuters)