Our news feeds are filled with the headlines of consolidation, whether that’s from larger energy companies acquiring a smaller independent or a merger of peers. At Stonebridge, we’re plugged into the pulse of M&A as we assist merging companies to integrate processes, technology, and data for more efficient, lower cost M&A. In fact, we are currently integrating 3 of the largest mergers this year and we expect the pace of M&A to only accelerate.
In its last Profile of American Independents, the Independent Petroleum Association of America reported that the number of independents had shrunk from 12,000 in 2009 to 7,000 in 2012. Inexplicably, IPAA stopped issuing such a valuable report to the oil & gas industry, but given the glide path down seen in 2012, the number of independents today is likely half of what it was a decade ago due to mergers and some bankruptcies, a trend that likely accelerated after an industry downturn and a global pandemic.
As reported 12 years ago by IPAA based on a large survey of energy companies, independents were dominated by small businesses who cumulatively drilled and produced the majority of US oil and gas. But the era of private independents depends on how consolidation continues and who buys who. In another 10 years, the energy industry might be dominated by large, publicly traded independents or perhaps just the supermajors in some basins. “Independent” also really only refers to E&Ps who have no or minimal midstream revenue according to IRS rules. Companies that do manage gathering, transportation, processing, and refining aren’t considered independent, so the future energy industry may look much different if integrated energy companies take the M&A lead, which includes the supermajors.
M&A is reshaping US basins. The Permian is rapidly becoming the sole domain of the super majors, majors, and large private E&Ps. In the DJ Basin, only a handful of operators hold the remaining drilling inventory. And with less appetite for risk, these companies shift their capital allocation to the best acreage, breakeven, and upside, even if that means stopping development in one basin after acquiring an E&P with that drilling inventory.
The small independents who remain are looking for opportunities where the major producers have divested assets, like the Eagle Ford; or they are focusing on proven acreage ahead of gas prices rebounding, like the Appalachian Basin and revitalizing development with new technology, like the Austin Chalk.
Similar to the unique development and production challenges of US basins large and small, no merger or acquisition is ever the same. As energy companies come together, their unique culture and digital ecosystems must tightly mesh to ensure the continued and efficient operation of assets under management, meet obligations to interest owners, and comply with local, state, and federal regulations.
With accelerating consolidation, the pool of energy companies that can divest and acquire becomes smaller. Both sides of the deal must view M&A as a strategic skillset to maximize value for sellers and buyers.
Leveraging the extensive business and technical skills of an integration partner like Stonebridge, M&A timelines are reduced along with millions in transition service agreement (TSA) costs. Our 30 years of M&A experience, business advisory services, technology expertise, and 100% focus on energy have made us the trusted partner that many teams come back to time after time. With Stonebridge as your M&A partner, your team will build a repeatable, agile, and cost-efficient strategy to onboard assets, solving the M&A challenges of today and positioning your organization to navigate the unknown complexities of tomorrow.