(Reuters) – The pace of U.S. upstream public-to-public mergers could slow in 2025 from their recent average of five per year along with a fall in deal sizes, according to a report from energy analytics firm Enverus that was released on Tuesday.
The consolidation trend in the U.S. energy sector, which triggered deals amounting to $250 billion in 2023, stretched into 2024 and is expected to extend into this year too as companies strive to augment their oil and gas reserves.
The wave of deals emptied pocketbooks and left fewer companies on offer, while some announced combinations have been delayed, either by antitrust regulations or by contract arbitration challenges.
The need for scale would motivate small and mid-cap E&Ps (upstream companies) to explore M&As despite deal sizes potentially falling and the break-evens of acquired inventory rising, Enverus analysts said in the report.
“The pool of available remaining private equity assets is largely smaller, higher on the cost curve or both,” they said.
Cost-saving measures such as long laterals – the horizontal portion of an oil well – will be important in improving the economics of the land available for drilling, with a nearly $5 per barrel breakeven per mile.
The longer laterals would be key in driving down well costs as they did in 2024, with a broader utilization of three-mile laterals and some four-mile wells by select operators, according to the report.
It also expects well costs to hold flat in 2025 after a nearly 10% decline in per-foot well expenditure the previous year.
Producers were extending their wells to be three miles long in August 2024, boosting production by fracking several wells at once, according to industry experts as well as company executives.
“We expect rigs and completion crews will continue making efficiency gains in 2025, placing downward pressure on overall equipment utilization,” the Enverus analysts said. Most activity would be weighted to public companies that prefer top-spec rigs and electric frac equipment.
Overall, Enverus Intelligence Research analysts expect Brent prices to average $80/bbl, assuming OPEC+ will unwind cuts only if they don’t pressure prices lower, and the demand from China stays flat throughout 2025.
This post is originally published on INVESTING.
