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Consolidation in the oil and gas industry hit a two year high as companies increasingly join forces to better weather the volatile market. 

Oil exploration and production companies inked more than 40 deals totaling $33 billion during the second quarter, the highest quarterly mergers and acquisitions activity since the second quarter of 2019. Seven of the most recent deals were worth more than $1 billion each, according to a new report from Austin energy research firm Enverus.  

“Responding to investor pressure to operate more efficiently, E&P companies have prioritized consolidation,” said Andrew Dittmar, senior M&A analyst at Enverus. “With three extremely active quarters out of the last four, there has been more than $85 billion announced in upstream M&A during the prior 12 months.”

Energy companies have been regularly pairing up since crude prices tumbled from more than $100 a barrel in 2014. The pace of mergers, however, has accelerated after the pandemic strangled demand, sent crude prices to historic lows and squeezed company profits. 

Some of the largest deals announced recently include Cabot Oil and Gas’ acquisition of Cimarex Energy for $9.3 billion, Pioneer Natural Resources purchase of DoublePoint Energy for $6.4 billion and Contango Oil and Gas takeover of Independence Energy for $4.5 billion. 

CONSOLIDATION: Expect more consolidation in oil industry through mid-2021

At the start of the pandemic, most of the mergers and acquisitions were driven by public companies joining forces to save costs by combining operations and assets, and cutting redundant positions. These deals were typically all stock, allowing buyers to purchase companies without tapping into their cash on hand. Examples include ConocoPhillips acquisition of Concho Resources, Chevron’s acquisition of Noble Energy and Pioneer Natural Resources acquisition of Parsley Energy.  

This year, public companies are acquiring private and private-equity-backed companies through cash-and-stock deals. These deals targeting private companies are less about cost-cutting measures and more about adding new wells and assets as oil demand and revenue picks back up, Dittmar said. Examples include Pioneer’s acquisition of DoublePoint Energy, Southwestern Energy’s purchase of Indigo Natural Resources and EQT’s buy of Alta Resources.  

Enverus expects consolidation to continue through the end of the year, but doesn’t expect another banner quarter with more than $30 billion in deals as more combination opportunities are exhausted.  

“As long as there isn’t a sharp retreat in commodity prices, M&A activity is likely to remain strong during the second half of 2021,” Dittmar said. “But we may not see another quarter with $30 billion or more in M&A this year simply because so many of the marquee public and private deals have been accomplished during the last 12 months.”