Dealmaking in the US oil and gas sector soared by 57% last year, as energy companies ramped up development spending fueled by increased cash flows from prior profits. According to a report from Ernst & Young, top energy firms invested $49.2 billion in mergers and acquisitions (M&A) in 2023, a significant rise from $31.4 billion in 2022. This surge was primarily driven by major deals among integrated oil and gas companies.
M&A activity is anticipated to persist through 2025, bolstered by ongoing large-scale transactions. Exploration and development spending also saw a notable increase, climbing 28% to reach $93.1 billion.
This shift towards higher spending on acquisitions and reserves marks a strategic pivot for many firms, which had previously focused on returning profits to shareholders rather than pursuing growth. In 2023, companies reduced expenditures on dividends and share repurchases to $28.9 billion, down from a record $57.7 billion the previous year.
The overall expenditures in the sector surged to $142.3 billion, reflecting a 36% increase compared to 2022. Bruce On, a partner at EY’s strategy and energy transactions group, noted a clear focus on consolidating operational positions, with companies aiming to drive efficiency through scale.
Despite the uptick in M&A activity, industry profits fell by 55% in 2023 to $83.9 billion, largely due to declining West Texas Intermediate (WTI) crude oil prices. Chevron emerged as the leading acquirer, spending $10.6 billion on property acquisitions, including a $6.3 billion deal for PDC Energy. Exxon Mobil also made headlines with its $60 billion acquisition of Pioneer Natural Resources, while Chevron’s agreement to buy Hess for $53 billion is currently delayed due to legal challenges.