Consolidation Wave Continues to Merge Shale Assets, Yet US Production Remains Near Pre-COVID Plateau

The latest US energy sector megadeal will make ConocoPhillips the single largest producer in South Texas’s Eagle Ford shale basin and expand its presence in two other major shale patches. More importantly, it will improve the Conoco’s economies of scale, cutting costs by hundreds of millions of dollars, and helping it fund an aggressive dividend boost and buyback scheme.

Though some have suggested the ongoing wave of consolidation in oil and gas, particularly within US shale, is part of a bid for oil majors to increase output, there has been little movement in the country’s field production of crude oil for a period of almost eight months now despite persistently elevated crude prices throughout that period. Capex budget growth has slowed significantly, and it seems likely that big oil may be more concerned with capturing assets to increase pricing power than output, thereby maintaining their margins.

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Continuing an unprecedented wave of energy sector consolidation, ConocoPhillips yesterday announced its acquisition of Marathon Petroleum in an all-stock deal worth $22.5 billion of enterprise value. US oil and gas deals hit a record $51 billion in the first quarter, a continuation of last year’s fierce merger pace centered in the top US shale field, according to data provider Enverus. Per Wood Mackenzie, the total value of deals focused on the US Permian shale basin alone surpassed $100 billion in 2023. ConocoPhillips will expand its presence there by 400 locations, but the real benefit of the Marathon tie-up will be concentrated in the Bakken and Eagle Ford shale basins. Conoco will now be the largest single producer in the latter region. Moreover, the two companies’ shale assets are largely adjacent to one another, allowing ConocoPhillips to leverage capital synergies that will cut -$500 million from the firm’s costs within a year of the deal closing. Marathon’s resources will add over two billion barrels of resources to Conoco’s portfolio, with an average cost of less than $30 per barrel to supply.

While many have suggested that oil majors are scooping up huge swathes of US shale assets in an effort to boost production, it seems more likely that ConocoPhillips and others are looking more closely at moving the needle on expanding their margins than upping extraction. Overall US production has not moved much at all since last October. In fact, for all that had been made of US oil output’s rise record highs earlier this year, that was mostly reflective of a recovery to pre-COVID levels of production. In other words, it has effectively taken the US four years just to regain what was lost after a sudden collapse in energy prices hollowed out the US oil and gas industry with more than 100 bankruptcies in 2020 alone. Field production of US crude did climb to an all-time high of 13.3 million barrels per day (bpd) earlier this year, but has since pulled back to 13.1 million bpd, identical to weekly production figures reached in March 2020, stagnating there for twelve consecutive weeks. This is hardly reflective of…