Shifting from shareholder returns to expansion! US oil and gas M&A activities increased by 57% year-on-year last year
American energy companies accelerated their merger and acquisition activities during the period of high oil prices, with the total value of M&A transactions reaching $49.2 billion last year, a year-on-year increase of 57%. Despite a decrease in dividends and stock buyback expenditures to $28.9 billion, the company's investment expansion strategy has shifted, with continued M&A activities expected over the next two years. Exploration and development expenditures increased to $93.1 billion last year, industry consolidation is accelerating, and total expenditures are projected to reach $142.3 billion in 2023. Despite facing falling oil prices, industry giants such as Chevron and Exxon Mobil are still actively expanding
According to a report released by Ernst & Young on Tuesday, the total amount of mergers and acquisitions in the U.S. energy sector last year reached $49.2 billion, a 57% increase from $31.4 billion in 2022.
This growth is mainly attributed to energy companies, especially oil giants and natural gas giants, increasing their development investment expenditures driven by the surge in profits in the previous years leading to higher cash flows.
Ernst & Young predicts that with more large transactions driving the market, merger and acquisition activities in the energy sector are expected to continue over the next two years.
Energy companies have not only been active in the M&A market but have also increased their investment in exploration and development. Last year, related expenditures increased by 28% to reach $93.1 billion.
This marks a shift in the global energy industry's strategy from shareholder returns in the past few years back to expansion, with many companies focusing more on expanding core businesses and improving efficiency to attract investors.
Last year, dividend and stock buyback expenditures by oil and gas companies halved from a record $57.7 billion in 2022 to $28.9 billion.
In addition to the surge in profits, the accelerated industry consolidation has also led to a significant increase in M&A activities. In 2023, total expenditures by U.S. energy companies reached $142.3 billion, a 36% increase from 2022.
Bruce On, partner at Ernst & Young's Strategy and Energy Transactions Group, said in a media interview, "In 2023, we (energy companies) are starting to focus on consolidating the position of operators," and pointed out that the strategy will shift towards investing in core businesses.
He mentioned that cash-rich companies are focusing on improving operational efficiency through scale and leveraging existing businesses.
Despite a 55% drop in profits to $83.9 billion for U.S. energy companies in 2023 due to falling oil prices, this has not stopped industry giants from expanding. For example, Chevron was the largest real estate buyer last year, with a total real estate acquisition cost of $10.6 billion, and in May this year, Exxon Mobil acquired Pioneer Natural Resources for $60 billion