U.S. Upstream Public-to-Public M&A Pace to Slow in 2025 Amidst Fewer Targets and Rising Deal Break-Evens
The pace of U.S. upstream public-to-public mergers could decelerate in 2025, with the number of deals expected to fall below the recent average of five per year, according to an industry report by Enverus. Additionally, deal sizes are anticipated to decline.
The energy sector's consolidation trend, which saw $250 billion in transactions in 2023 and continued into 2024, is projected to persist in 2025 as companies seek to expand their oil and gas reserves. However, the wave of deals has depleted available targets, and announced mergers have faced delays due to antitrust regulations and contract disputes.
Despite the potential reduction in deal sizes and rising break-evens for acquired assets, the need for scale will drive smaller and mid-cap E&Ps to pursue M&A opportunities, Enverus analysts stated. They noted that the remaining private equity assets are either limited or more expensive.
Cost-saving measures like extended laterals will play a crucial role in optimizing drilling economics. Enverus estimates a breakeven of $5 per barrel per mile for longer laterals, which proved effective in lowering well costs in 2024. The report anticipates a broader adoption of three-mile laterals and even four-mile wells by select operators.
Well costs are forecasted to remain stable in 2025 following a 10% decline in per-foot expenditure in 2024. As of August 2024, producers had started extending wells to three miles, boosting production by simultaneously fracking multiple wells, industry experts and company officials confirmed.
Enverus analysts expect continued efficiency gains in rigs and completion crews in 2025, reducing overall equipment utilization. Public companies will likely dominate the activity due to their preference for high-spec rigs and electric frac equipment.
Overall, Enverus Intelligence Research projects an average Brent price of $80 per barrel in 2025, assuming OPEC+ will only adjust cuts to avoid downward pressure on prices and that China's demand remains stagnant.