This downturn cycle of oil and gas has proven to be difficult for many operators, causing many companies to file for chapter 11 due to overwhelming debt and weak liquidity profile. However, it also presented an opportunity for companies to acquire players in distress or merging of both companies to increase operational scale and efficiency. Operators with strong balance sheets and a clear strategy to remain in oil and gas, can indeed benefit by diversifying or expanding their portfolio through acquisitions of asset in discount. In all of the recent deals, and likely in future mergers, there is a significant acreage in unconventional areas involved, especially in Permian Basin. Permian Basin remains as the most attractive acreage in US Lower 48 and provides very competitive payback periods, measured in months, unlike offshore projects where the payback periods are usually measured in years.

The Chevron-Noble $5bn transaction in 2020 kick started the wave of merger and acquisition in the upstream industry. With this acquisition, the United States Chevron will be adding a new operation in the Denver-Julesburg (DJ) Basin, while strengthening its position in Permian Basin with new neighbouring acreage. Chevron was also interested in Noble’s de-risked natural gas portfolio in Eastern Mediterranean where 98% of the proved reserves is ready for development. This acquisition provides diversification to Chevron’s current portfolio with the increase of natural gas production which is expected to be a bigger portion of its future cash flow.

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The Devon-WPX $2.56bn deal, engaged in a merger operators of equal size to consolidate and strengthening their position of 400,000 net acres in the Delaware Basin, expected to close in Q1 2021. They will become fourth biggest unconventional producer putting them right behind EOG. While WPX Energy currently operates in the Bakken and Permian Basin, Devon Energy has positions in the Permian Basin, Powder River Basin, Anadarko Basin, and Eagle Ford. This merger will help to dilute Devon’s exposure to federal land acreage, which faces uncertainty if Candidate Biden was to win the US presidential election and effectively banned drilling in federal lands.

With the ConocoPhillips-Concho $9.7bn deal, one of the largest US independent oil companies, and the largest producers in Alaska as ConocoPhillips was also attracted by Concho’s position in the Permian Basin. This deal may be a strategic bet for ConocoPhillips who currently has approximately 800,000 total net acres in USL48, but only 167,000 net acres in unconventional Permian Basin and producing only 56 thousand barrel of oil equivalent per day (mboed) in 2019. With the acquisition of Concho, ConocoPhillips will be adding a total of 550,000 net acres in Permian Basin and production of up to 319 mboed. ConocoPhillips’ absorption of Concho’s expertise in Permian Basin will prove beneficial as Concho is able to reduce their well cost to less than US$800 per foot and generate oil break-even prices below US$35 per barrel. However, ConocoPhillips will be taking on additional regulatory risk depending on election results as Concho has 20% acreage exposed to federal land. Candidate Biden has announced that he would forbid new leasing and development on such lands or even banning new permitting activity on existing leases.

The announced Pioneer Natural Resources-Parsley Energy deal is estimated at $4.5bn and is the combination of the two pure Permian players that would result in Pioneer holding around 930,000 acreages in the Midland and Delaware Basin. The consolidation would create great synergy in terms of operational efficiency given that the company will be operating in much bigger scale and will help the company sustain profitability even if crude oil price do not return to the level before pandemic. Beside, both companies do not hold any federal land, reducing their risk exposure to the potential ban on fracking on federal lands. The deal between Pioneer and Parsley Energy would create the largest independent producer in the Permian Basin with Occidental dropping to second.

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As a result of crude oil price crash followed by the economic crisis sparked by Covid–19, crude oil demand has plummeted due to restricted mobility as lockdown measures were implemented. Operators were swift to readjust their capital and production guidance for the year of 2020. From a list of 17 operators, the total capital expenditure cut sums up to approximately $38bn, with Exxon leading the cut with $10bn followed by Chevron with $6bn. However, Occidental Petroleum has the biggest percentage cut of 55%. The withdrawal of investments in development plan in USL48 has led to a decline production in 2020, and further enhanced by production curtailment by many operators. Crude oil producers were severely impacted, mainly due to the dampening of fuel demand, forcing a cutback on operating rigs and completion crew until oil prices recover.

The results of the 2020 Presidential election can have a definite impact on the oil and gas activity especially on federal land acreage. The Democratic candidate Joe Biden supports legislation and policy that aims at gradually replacing oil production with increasing cleaner energy production and putting the US on track to net-zero emissions by 2050. If elected, Joe Biden have plans to immediately ban new oil and gas leasing on federal lands, and also to stop any new drilling permits needed for new wells to be drilled in federal lands. Although at a national level oil and gas acreage from federal lands only amounts to 10%, but states such as New Mexico produce 61% of their oil and gas from federal lands. Moreover, the banning of drilling on federal lands would have a larger effect on offshore production than onshore. Currently, offshore federal production makes up a significant amount of total offshore production with a value of approximately 97%. Over the past months Joe Biden has sent contradictory messages when stating his position on banning fracking. His original statement was to ban fracking completely but later clarified this would only apply to federal lands and that fossil fuels are needed in the transition to cleaner energy sources. Nonetheless, during the last presidential debate he clearly acknowledged that he would transition away from the oil industry as a whole which emits harmful greenhouse gasses that needs to be replaced by renewable energy.