Despite a slowdown in shale M&A, $150 billion in upstream opportunities still available

Upstream merger and acquisition (M&A) activity is projected to decrease significantly in 2025 after witnessing record levels in the past two years driven primarily by US shale mergers. The total value of the global deal pipeline amounts to approximately $150 billion as much of the industry consolidation has reached its peak, indicating a lesser likelihood of reaching recent high levels. Additionally, ongoing geopolitical conflicts in regions such as the Middle East, the Ukraine conflict, and the challenging fiscal conditions in the UK are expected to pose significant challenges for market participants.

When it comes to M&A activity, North America is set to continue leading the way, with nearly $80 billion worth of upstream opportunities available in the market. In other parts of the Americas, South American deal values escalated from $3.6 billion in 2023 to $14.1 billion in 2024 (excluding Chevron’s acquisition of Hess). This rise can be attributed to the growth ambitions in regional exploration and production (E&P), despite Petrobras halting its divestment program. The last year marked a notable period of consolidation within the US shale sector, with around 17 deals focused on consolidation, a stark contrast to the mere three acquisitions in late 2023. While a decline in activity was anticipated after such heightened levels, there is still ample business opportunities to be pursued. North America remains at the forefront of M&A activity and will continue to exert significant influence in maintaining the sector’s stability. Furthermore, there is room for further growth if US shale gas M&A activity picks up, as long as Henry Hub prices remain steady and conducive to deal-making, as stated by Atul Raina, Vice President of Oil & Gas Research at Rystad Energy.

Exploring beyond the traditional hubs, the Middle East is swiftly emerging as a significant hub for M&A transactions. Fueled by plans for liquefied natural gas (LNG) expansion, the region experienced its second-highest year of M&A activity since 2019, with the deal value almost reaching $9.65 billion in 2024, coming close to the five-year peak of $13.3 billion in 2022. The surge in activity can be primarily linked to the presence of national oil companies in the Middle East undertaking major projects, such as QatarEnergy’s North Field expansion and ADNOC’s Ruwais LNG.

While the North Field expansion aims to boost QatarEnergy’s LNG production to 142 million tonnes per annum (Mtpa) by the early 2030s, ADNOC is reportedly contemplating offering an additional 5% stake in Ruwais LNG to an international partner. However, continuous geopolitical tensions in other parts of the region could act as obstacles or delays in deal completion. In Europe, the M&A deal value decreased by about 10% year-on-year, settling at $14 billion in 2024, with the UK accounting for around 75% of the total deals. The major players in the region have been adopting an autonomous model strategy to expand their presence in the North Sea. The most significant deal this year involved Shell and Equinor merging their UK North Sea upstream portfolios, excluding some of Equinor’s cross-border assets. This amalgamation will position the combined entity as the largest producer in the UK North Sea, with an estimated output of around 140,000 barrels of oil equivalent per day (boepd) by 2025.

Despite the existence of $8 billion worth of upstream opportunities in Europe, the outlook for future M&A activity in the region remains uncertain due to the fiscal policy in the UK, which represents 73% of the potential deals valued at approximately $5.9 billion. The stringent fiscal terms set by the government for offshore oil and gas could potentially dampen buyer interest. However, combining portfolios that balance deferred tax positions and future expenditure could potentially become a rising trend in the country’s M&A landscape considering the prevailing fiscal challenges.