A flurry of mid-year A&D activity burst through the gloom of tariff uncertainty and commodity price volatility that had permeated the second quarter.
And experts anticipate more action on the horizon.
“Assuming no major price swings, we should see more activity in the second half of the year as some deals scheduled to hit the market in [the second quarter] were delayed due to post-Liberation Day volatility,” said Cristina Stellar, senior vice president and managing director of energy investment banking at BOK Financial.
The divestiture market is churning following two years of large-scale consolidation across the Lower 48. Big public companies like ConocoPhillips, Occidental Petroleum, Diamondback Energy and APA Corp. are selling non-core assets to reduce debt after acquisitions.
But smaller public producers and private operators are ramping up activity in emerging plays and in basins seemingly abandoned by the majors, like the San Juan and the Midcontinent.
And after digesting their latest massive deals, some major E&Ps like Exxon Mobil are open to new acquisitions.
Liberation day
President Donald Trump proclaimed “Liberation Day” on April 2 and signed sweeping new tariffs aimed at recalibrating U.S. trade.
Markets whiplashed in response to the subsequent global trade uncertainty. WTI dipped below $60/bbl for the first time since 2021 during the COVID-19 pandemic.
Oil-directed drilling activity declined during the second quarter, particularly in the Permian Basin. There were 231 horizontal oil rigs active in the Permian in the week ending Aug. 8, a decline of 49 rigs, or 18%, from 280 rigs as of April 4, according to Baker Hughes data.
Geopolitical uncertainty and dizzying price swings weigh heavily on deal processes. Uncertainty translates into paralysis in the upstream M&A sector. Even when buyers are actively seeking assets, sellers hesitate, fearing they’re selling too low.
Total upstream M&A deal value tumbled 21% quarter-over-quarter to $13.5 billion, according to Enverus Intelligence Research.
“Volatility in commodity and equity markets raised a major yellow flag for M&A, slowing the pace of dealmaking,” said Andrew Dittmar, principal M&A analyst at Enverus. “That added an additional barrier to a market that was already challenged by the lack of remaining attractive opportunities for public E&Ps, especially in the Perman Basin.”
While second-quarter uncertainty stalled new deals from coming to market, several transactions already in play continued to progress.
“Liberation day added a wrinkle, but deals did still transact,” Stellar said. “It’s just they took longer.”
Countercyclical M&A
Few companies have the scale and balance sheet health to execute on M&A in a downcycle. EOG is one of those companies.
The deal expands EOG’s core footprint in the Ohio Utica volatile oil window, which averages 65% liquids production. Encino also adds 330,000 net acres in the Utica’s wet and dry gas windows.
Encino’s estimated 2025 production is 235,000 boe/d (20% oil, 30% NGL, 50% gas).
Natural gas has been a lure for upstream A&D activity. While oil prices have declined, natural gas prices have increased due to rising LNG and power demand.
Many analysts foresee a $4/Mcf to $5/Mcf price floor once new LNG and data center projects come online in the U.S. Seasonal price weakness has pushed spot prices back below $3/Mcf as of mid-August.
“I think the expectation is as we head into the fall and winter, [natural gas] prices could strengthen,” said Stephen Trauber, managing director, chairman and global head of energy and clean technology at Moelis. “There could be more folks considering bringing gas assets to the market and more buyer interest.”
Stephen Trauber, Moelis.
The stability in forward strip gas prices likely gave Encino greater confidence to move ahead with the deal than it would have had with a portfolio more heavily weighted toward oil. Still, few players were as well positioned as EOG to lean into countercyclical M&A.
“My read on it is EOG had the best balance sheet in the business,” Dan Pickering, chief investment officer for Pickering Energy Partners told Hart Energy in July. “They had net cash and could take advantage of a seller that wanted cash.”
Divestitures continue
Majors and big publics are shedding non-core properties that could become foundational new assets for smaller teams.
Following its high-profile Marathon Oil acquisition, ConocoPhillips sought a new home for its Oklahoma portfolio, a region tied to the company’s roots for more than a century.
ConocoPhillips announced finding a buyer in August, agreeing to sell its Oklahoma assets to private E&P Flywheel Energy for $1.3 billion. The deal is expected to close early in the fourth quarter.
Oklahoma City-based Flywheel Energy is backed by Stone Ridge Energy, the energy-focused investment platform of financial services firm Stone Ridge Holdings Group.
Flywheel and Stone Ridge are building a growing gas empire in disparate U.S. basins. This spring, Stone Ridge and Flywheel spent over $1 billion to acquire Colorado Piceance Basin assets from Terra Energy Partners.
Flywheel’s legacy footprint is in the gassy Arkansas Fayetteville Shale. Last year, international commodities trader Gunvor acquired a roughly 42% stake in a Flywheel holding company tied to the Arkansas acreage.
Stone Ridge is the majority investor in the Fayetteville holding company and is separately pursuing new M&A opportunities in partnership with Flywheel’s management team.
Permian Resources continues to grow its Delaware Basin empire through timely M&A. In the second quarter, Permian Resources closed an acquisition of APA Corp.’s northern Delaware assets for $608 million.
The deal includes 13,320 net acres and 8,700 net royalty acres in New Mexico, near some of Permian Resources’ core operating areas. Production from the assets is expected to average 12,400 boe/d (46% oil) in 2025.
Last year, Permian Resources picked up a blocky asset in the West Texas Delaware from Occidental for about $818 million.
Oxy has been hard at work raising money through divestitures since closing a $12 billion acquisition of Permian E&P CrownRock last year. In February, Oxy announced selling a $905 million minerals package in the Denver-Julesburg Basin to Elk Range Royalties.
During the second quarter, Oxy sold non-core Permian upstream properties and Midland gas gathering assets for nearly $950 million.
Diamondback has also pulled creative levers to raise funds through divestitures. In January, Diamondback agreed to “drop down” around $4.45 billion in Permian mineral and royalty interests to its subsidiary Viper Energy Partners. It was the largest-ever transaction of its kind.
Diamondback also said it sold around $138 million in non-operated Delaware Basin interests to Riverbend Energy Group in the second quarter.
Old targets, new investment
M&A activity is even returning to somewhat forgotten basins that the major producers left long ago.
In a $787 million deal, Mach acquired IKAV’s San Juan Basin portfolio, a natural gas-rich asset previously operated by supermajor BP. Mach also landed a $500 million acquisition of Sabinal Energy’s conventional oil assets in the Permian.
BKV is getting even larger in the Barnett Shale with an acquisition from Bedrock Energy Partners valued at approximately $370 million.
The Bedrock deal includes 97,000 net acres offsetting BKV’s Barnett acreage. Production averages 108 MMcfe/d (63% natural gas). Bedrock will add 50 new drilling locations with average 10,000-ft laterals and another 80 refrac locations.
As top-tier drilling inventory in the best U.S. basins gets picked over and deal valuations increase, savvy teams are looking into more forgotten plays, Trauber said.
“We’re seeing activity in the secondary basins and also people starting to think outside of the U.S.—into Canada, for example,” he said.
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