The oil and gas production sector has already seen some mega deals in 2023 and merger and acquisition (M&A) activity is expected to continue into 2024 as the oil majors seek new growth opportunities.
Exxon Mobil (NYSE:XOM) announced in October an agreement to acquire Pioneer Natural Resources (NYSE:PXD) in an all-stock transaction worth nearly $60 billion. Later in the same month Chevron (NYSE:CVX) announced a similar stock deal to buy Hess (NYSE:HES) for $53 billion.
Market analysts see the two similar-sized deals as a doubling down on bets that fossil fuels — particularly oil and gas — will remain the predominant sources of energy for decades to come, despite the global push towards renewable energy sources.
There will be a slow and steady realization that the energy transition will be “a messy, non-linear one,” Biraj Borkhataria, analyst at RBC Capital Markets predicts. Oil and gas demand “is likely to remain more resilient than anticipated a few years ago.”
Also Read: Exxon Mobil’s Big Bet: $20B Annual Buybacks, Doubling Upstream Earnings By 2027
Will Oil And Gas Rivals Follow?
Thus, both Exxon and Chevron are looking toward the long-term for oil and gas. Can their rivals allow them any latitude to capture more of this market, or would it be more prudent to double down on investments in renewable energy?
It’s a tough choice the oil majors have to make, and activity in M&A in the coming months should help answer that question.
In contrast, European majors such as BP (NYSE:BP) and TotalEnergies (NYSE:TTE) have invested in the green transition at a greater pace than Exxon and Chevron. But RBC believes European companies will inevitably become more active in the fossil fuels space.
BP Spin-Off Possibility
Borkhataria suggests BP could spin off its US onshore business BPX to provide cash dollars to invest in U.S. oil and gas assets — possibly even purchasing divestments of non-core assets from the two U.S. majors.
“In order to allow for US-centric acquisition currency, we think BP may look to consider separately listing its BPX segment in the coming years, creating a platform for growth and allowing for the entity to be a consolidator in its chosen basins,” he said.
He added: “Both Super-Majors in the US are in the process of acquiring companies to the tune of $60bn…
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