Oil and gas industry dealmaking surged by 57% last year, as energy companies significantly increased their development spending. This growth was fuelled by higher cash flows from previous years’ profits, according to a recent report from Ernst & Young. In 2023, leading energy companies spent $49.2 billion on mergers and acquisitions, a considerable rise from the $31.4 billion recorded in 2022. This increase was largely driven by major deals among integrated oil and gas firms.
The trend of mergers and acquisitions is expected to persist throughout this year and into 2025, with further significant deals anticipated. Additionally, last year saw a 28% rise in spending on exploration and development, bringing total expenditures in this area to $93.1 billion. This shift towards increased spending on dealmaking and expanding reserves represents a departure from the previous focus on maximising shareholder returns, which many companies had adopted to win back investors who had been wary of the sector.
In 2023, oil and gas companies reduced their spending on dividends and share buybacks to $28.9 billion, a steep decline from the record $57.7 billion spent in 2022. This sector-wide consolidation led to a total increase in expenditures to $142.3 billion, marking a 36% rise from the previous year.
According to Bruce On, a partner at EY’s strategy and energy transactions group, 2023 marked a turning point where operators began to consolidate their positions. Companies, now flush with cash, shifted their strategies to focus on driving efficiency through scaling and leveraging existing operations.
The oil and gas industry is clearly evolving, with companies prioritising growth and efficiency, setting the stage for continued momentum in the years to come.
Diversified Energy Company plc (LON:DEC) is an independent energy company engaged in the production, marketing, transportation and retirement of primarily natural gas and natural gas liquids related to its U.S. onshore upstream and midstream assets.
