us shale m&a activity logo


US shales M&A activity

Driving value from M&A in the shale revolution

Our report explores shale oil news and offers a roadmap for extracting more value from shale mergers and acquisitions.

In March 2020, Deloitte developed this research report exploring the latest in shale oil news and shared a roadmap for extracting more value from shale mergers and acquisitions. We now expect that the plunge in oil prices and COVID-led demand uncertainty will likely pause and change the calculus of M&A activity in shales. Although consolidation might be a necessity for many US shale operators to survive or thrive, creating value from acquisitions hasn’t been easy in the past, and it could get tougher in 2020. With more than 50% of top shale deals destructing value during 2014-2019, buyers should have a solid pre-merger engineering and value-creation plan for their targets, and dealmakers should fine-tune their conventional valuation models.

Read the report to learn about the history of shale deals and how companies can create a future-proof acquisition strategy and a renewed focus on operational excellence.

A closer look at shale oil deals

The trend of consolidation in shales has gained strength year over year, with M&A deals totaling $300 billion since 2014 and average price per acre paid by buyers crossing $49,000 in 2019.

Although the lack of capital discipline and the way an acquisition is financially structured and valued could have influenced the performance of a deal, our analysis of the top 100 shale deals by value challenges conventional wisdom and suggests that:

  • Buying in high-potential geology has merits, but it shouldn’t supersede the strategic rationale of dealmaking and value investing. Seventy percent of the deals by value happened in tier 1 zones at a 2–4x premium but achieved 10 percent lower productivity (adjusted) than deals in tier 2 and 3 zones
  • Learning by experimenting with new well designs is a trait of many successful buyers, but only if these designs are optimal, and they do not have to always be extensive. Fifty-four percent of buyers after the acquisition followed an intense and expensive completion design strategy (with longer laterals and more proppants) but realized an average productivity of less than 1,100 boed.
  • Acquiring adjacent acreage lowers operating costs, but there is a scope for buyers to extend these gains further by optimizing below-surface planning. Fifteen percent of operational cost savings were realized by buyers that built a contiguous acreage position, but the savings couldn’t fully offset the up-front capital burn for most.

Unlocking superior value likely requires a differentiated approach to dealmaking and to subsequent development of the assets.

Moving the US shale revolution forward

A roadmap for driving M&A in shales

A sole focus on acquiring tier 1 acreage and the tendency to overengineer newly acquired wells in many cases explain the value destruction in the US O&G shale market. In hindsight, yes, buying at a low price would have helped. But the nascent learning curve of operators and the perils of the high growth of shales would have still challenged dealmaking in shales. Although each deal has its unique strategic importance and a time frame to create value, the below considerations could help buyers to fairly value and rightly operate the acquired assets.