The oil and gas industry could see another half-dozen or more mergers and acquisitions by the middle of next year as companies consolidate to weather the economic fallout from the coronavirus pandemic.
Global consulting firm Accenture forecasts one or two acquisitions by oil majors, two to three acquisitions by large independents taking over smaller players, and two to three mergers of equals between small and mid-sized players by the middle of 2021.
This new wave of consolidation will result in fewer companies producing the bulk of the nation’s oil and natural gas. Accenture predicts between eight and 12 companies will produce half of the U.S. onshore oil by the end of 2021, down from about 16 to 17 players currently.
“You can’t have 5,000 relevant players,” said Muqsit Ashraf, Accenture’s lead energy consultant. “There isn’t room for so many players. There will be fewer players driving 50 percent of production in U.S. onshore.”
Energy companies are consolidating as crude prices have crashed in recent years and as the outlook for oil demand has soured with the rise of actions to slow climate change. The pace of mergers and acquisitions has accelerated since the global pandemic, which crushed crude demand and squeezed company profits.
CONSOLIDATION: The oil industry is consolidating. That's bad news for workers in Houston.
Several oil and gas companies have already started to consolidate, including Chevron’s nearly $12 billion acquisition of Houston-based Noble Energy last month and ConocoPhillips’ $9.7 billion takeover of Concho Resources.
The oil industry recognizes the need for consolidation, Accenture analysts said. Companies need scale to produce oil profitably at low prices, and that scale can help companies access Wall Street capital and the top-producing oil fields to remain relevant in this competitive industry, Ashraf said.
“Consolidation fortifies these companies to withstand the onslaught of low oil prices,” Ashraf said.
However, this new wave of consolidation will leave behind a smaller industry with fewer players employing fewer workers. That’s bad news for Houston, the nation’s energy capital, which has already lost thousands of jobs in recent oil busts.
Energy companies have laid off 17,500 drilling-related workers in the Houston region since 2018, with more than 70 percent of those cuts coming during the past six months of the pandemic, according to the Texas Alliance of Energy Producers. While it appears the job losses stemming from the pandemic are slowing this fall, more layoffs could be coming as companies merge and cut redundant positions.
Oil companies are under pressure to cut costs as revenue and profits have taken a hit during the pandemic. One of ways companies can lower expenses is by consolidating operations and cutting redundant positions while boosting overall production, said Manas Satapathy, Accenture’s managing director for energy mergers and acquisitions.
“Companies are thinking about squeezing out a lot of inefficiencies and costs,” Satapathy said. “They’re asking why do we need so many managers in the Permian?”
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November 23, 2020 at 10:42PM
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Expect more consolidation in oil industry through mid-2021 - Houston Chronicle
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