Forbes Piece: Shale Merger Mania Heats Up Amid Falling Rig Counts

Drone view captures a stunning sunset over the Permian Basin, where a drilling oil rig stands tall, symbolizing the intersection of nature and industry. GETTY

[Note: This story is also published at Forbes.com]

With a pair of significant new deals having taken place in the span of a week, the mergers and acquisitions trend in the U.S. oil and gas shale sector is heating up again during the second half of 2023. The uptick in the pace of major M&A deals comes as the active rig counts by both Enverus and Baker HughesBHI continue to drop week after week, another indicator the U.S. shale drilling boom is over and the Permian is now in full-fledged development mode.

Baker Hughes’s latest weekly rig count, released August 18, found a week-over-week drop of 13, the third consecutive week in which the count has fallen. Since its recent peak of 878 active U.S. rigs in mid-January, the Enverus daily rig count sat at 701 as of August 21, a 20% reduction in eight months. The slowdown is undeniable, which places a premium on maximizing economies of scale to control costs as production levels stagnate. Executing mergers and acquisitions can enable a company to raise its equity production while simultaneously increasing those economies of scale.

Within a span of a week, two Texas producers - Permian Basin-based Permian Resources and Eagle Ford-focused Silver Bow Resources - executed deals in line with this strategy. On August 14, Silver Bow was able to acquire the remaining Eagle Ford of Chesapeake EnergyCHK for $700 million, a price which Andrew Dittmar, Director at Enverus called a “disappointment” for Chesapeake.