The oil and gas industry is grappling with subdued pricing and declining rig activity, leading to underperformance compared to the broader U.S. market over the past year. However, despite these challenges, the sector’s mergers and acquisitions (M&A) outlook remains positive.
The recent Diamondback-Endeavor deal exemplifies this optimism by consolidating prime acreage under fewer key operators, enabling Diamondback to implement cost-cutting strategies and enhance shareholder returns.
OPEC‘s efforts to stabilize oil prices through supply cuts have been deemed insufficient, prompting expectations of extended and deepened cuts through 2024. U.S. mergers and acquisitions activity, particularly in the Permian basin, coupled with associated production cuts, presents a glimmer of hope for OPEC amid challenges from growth-oriented private producers.
In light of ExxonMobil’s recent delay in the Golden Pass terminal project until 2025, no significant new U.S. liquefied natural gas (LNG) export terminals are anticipated to come online in 2024, postponing demand from the Gulf Coast to 2025. Despite the Biden administration’s pause on new LNG terminal approvals, under-construction terminals are expected to double U.S. LNG exports in the coming years. However, concerns over the reliability of U.S. LNG exports among Asian and European customers may temper prices.
The surge in M&A activity indicates a flattening of the U.S. production growth curve, with public firms prioritizing shareholder returns over growth, contrary to private entities’ focus on expansion. Although U.S. oil production saw an increase of approximately 850,000 barrels per day in 2023, estimates for 2024 growth are diminishing rapidly, ranging from 150,000 to 400,000 barrels per day. Modest inventory builds are reinforcing ongoing weakness in the oil market, despite OPEC’s extended cuts.
Oilfield service firms are expected to benefit from high demand, enabling them to wield significant pricing power and expand margins in the coming quarters. Schlumberger’s technological advancements position it as a leader in the field, allowing the company to command premium pricing and deliver value-added solutions to customers.
TC Energy faces investor concerns regarding its debt levels, Coastal GasLink project overruns, and the planned 2024 liquids spinoff. However, asset sales and optimization opportunities are expected to provide sufficient capital to reduce debt, while the liquids spinoff could alleviate leverage on TC Energy’s balance sheet and highlight growth prospects in the gas and power portfolios.
APA remains optimistic about its exploration assets in Suriname, anticipating a potential game-changer with promising discoveries. With a final investment decision expected in 2024, APA believes the project will move forward, presenting significant upside potential. However, market sentiments may not fully reflect this optimism, offering opportunities for outperformance in a challenging oil and gas price environment.