Upstream M&A deals reached a 3-year high of USD 181 billion in 2021, returning to pre-COVID levels

Source: press release, 21 January 2022

Annual upstream M&A deal value by continent (source: Rystad Energy Upstream M&A Solution, Rystad Energy research and analysis)
Annual upstream M&A deal value by continent (source: Rystad Energy Upstream M&A Solution, Rystad Energy research and analysis)

Global upstream merger and acquisition (M&A) deals rebounded to pre-COVID-19 levels in 2021, reaching a total of USD 181 billion, a 70% increase over 2020, Rystad Energy research shows. The total deal value for 2021 was the highest in 3 years and almost reached the highs seen in 2017 and 2018 of USD 205 billion and USD 199 billion, respectively.

Sellers faced difficulty finding buyers during the downturn in 2020, but that ended last year as big deals made a comeback on high commodity prices and a strengthening market. Deals valued at more than USD 1 billion accounted for USD 126 billion, or 70%, of the global total. The share of USD 1 billion-plus deals rose almost three-fold, with 35 such deals announced in 2021 compared with just 13 in 2020.

Out of the USD 1 billion-plus deals, 13 were company acquisitions together valued at around USD 65 billion. Two large Australia-focused mergers – one between Santos and Oil Search and another between Woodside Petroleum and BHP – contributed about USD 22 billion, while other USD 1 billion-plus company acquisitions were focused on North American assets.

The share of resources sold in deals shifted in 2021, with gas accounting for 56% of all traded resources, a sizeable jump from the 43% share it had in 2020. Oil accounted for 31%, and natural gas liquids came in at 9%. This shift was primarily driven by the North American acquisitions in 2021 but was also helped by deal activity in other regions.

“With a strong potential deal pipeline, continuous pressure on companies to transform amid a global push to lower carbon emissions while simultaneously delivering profitable oil and gas production, and an average oil price of above $60 per barrel expected for 2022, the upstream M&A market is likely to stay active for the foreseeable future,” says Ilka Haarmann, senior analyst at Rystad Energy.

Breaking down the deals
Company acquisitions totalled USD 76 billion, around 42% of the global announced deal value in 2021, a drop in share compared with 2020 when purchases accounted for about 57% of the total deal values. The largest company acquisition by deal value was the merger of Cimarex Energy with Cabot Oil & Gas, which was valued at about USD 17 billion. Following suit with most other North American acquisitions announced in 2021, the deal agreement was signed in the year’s first half. Cimarex and Cabot did not have overlapping asset positions. The same applied for Appalachia-focused independent Southwestern Energy when it acquired Haynesville-focused Indigo Natural Resources for USD 2.7 billion and when Paloma Partners acquired Goodrich Petroleum for USD 480 million. Other US company acquisitions saw the merger consolidate the buyers’ existing portfolio positions.

The largest field acquisitions were Aker BP’s announcement to acquire Lundin Energy’s oil and gas portfolio, valued at about USD 14 billion, and ConocoPhillips’ acquisition of Shell’s Permian Basin position for USD 9.5 billion. Field acquisitions in the Permian totalled USD 19 billion in 2021, accounting for more than half of North American field and license acquisitions, which totalled USD 35 billion. Russian acquisitions amounted to USD 12 billion, while in Europe, they clocked in at around USD 24 billion.

Buyers and sellers
The only peer group with positive net inorganic resource growth in 2021 was public companies, while private players and national oil companies (NOC) divested more resources than they acquired on a net basis. Public companies increased their net resources by about 12 billion barrels of oil equivalent (boe) through acquisitions last year. However, there are significant discrepancies between different company segments within this group. The top segment in terms of acquiring resources was public independents growing their positions mainly in North America. Among them were Coterra Energy (formed by the merger of Cimarex Energy with Cabot Oil & Gas), Southwestern Energy, EQT Corporation, Chesapeake Energy and ConocoPhillips. In total, public independents acquired around 34 billion boe of resources in 2021 and sold approximately 21 billion boe, resulting in a net resource growth of about 13 billion boe for public independents.

Among public companies, the majors were the most aggressive in divesting resources in 2021, reducing their collective resources by about 5.5 billion boe on a net basis. The largest inorganic resource reduction among majors was made by Shell, which divested nearly 3 billion boe in North America, 500 million boe in Africa and 200 million boe in Asia. In total, Shell sold around 3.3 billion boe net for more than USD 11 billion in net proceeds in 2021. ExxonMobil – the major with the second-largest inorganic resource reduction in 2021 – divested net resources of nearly 1 billion boe for a net amount of about USD 3.8 billion, mainly through sales in Europe and Asia.

Public independents spent more than 75% of the segment’s acquisitions costs on acquiring assets from other public players, including majors, to which around 10% of the total amount spent on upstream acquisitions was paid. Public companies acquired assets worth USD 125 billion and sold assets for about USD 114 billion. Private companies in total acquired assets for USD 45 billion and sold assets for around USD 46 billion.

Looking ahead
The deal pipeline is robust, and the upstream M&A market looks set to continue to strengthen, with deals in the US likely to remain a crucial driver of the global deal value. Large sales in other regions may also materialise in 2022, particularly if majors continue to streamline their portfolios. While resources under development and production can receive high values in the current environment, buyers appear to be more cautious about discovered resources. Without larger changes in the macroeconomic environment, this discrepancy could persist. However, a further steady increase in valuations for producing and under development resources appears unlikely, judging by historical values.

Learn more in Rystad Energy’s Upstream M&A Cube.