Mergers and acquisitions in the U.S. shale oil industry continue, which may help oil prices stabilize

Forex Platform- Analysts say the merger and acquisition boom in the US shale oil industry has laid the foundation for stabilising oil prices.

As oil producers grow in size, they will focus on shareholder returns and will not be inclined to drastically increase drilling every time oil prices spike, ultimately flooding the market with oil and driving down prices.

Last week, in the US oil industry's latest big merger announcement, ConocoPhillips said it had agreed to buy Marathon Oil in an all-share deal valued at $22.50 billion, including $5.40 billion in net debt.

The deal will immediately increase cash flow and earnings, giving investors another reason to cheer the ongoing wave of consolidation.

Nowadays, U.S. oil companies prefer to take advantage of their rising market valuations to acquire competitors or smaller companies in an all-stock deal, which allows them to immediately add developed and operated wells to their inventories without requiring buyers to invest more money to drill new wells from scratch.

Analysts believe that these transactions will create a more stable environment for shareholders and oil prices.

Many market observers say the wave of mergers and acquisitions is far from over.

Jason Gableman, analyst at TD Cowan, said last week: "What we are seeing now is that more and more large companies control more of the oil in the US because of consolidation, and they will be able to achieve modest single-digit to median oil production growth."

Mr. Gableman added: "This will lead to a healthier environment for commodities, which will be less responsive to spikes in oil prices and support higher, more stable prices."

Many analysts say consolidation will continue as shale oil and gas deals increase outside the Permian basin, where prices are high and reasonable prices are running out.

Atul Raina, vice president of upstream M & A research at Rystad Energy, wrote in an analysis last week that the value of deals so far this year has surpassed the $69 billion total recorded in the first half of 2023.

"However, due to the limited opportunities available in the Permian basin and high commodity prices, we expect M & A activity outside the Permian basin to increase," Raina said.

Analysts note that North America will continue to drive global upstream M & A activity, with nearly $80 billion worth of opportunities in the market, including about $41 billion worth of M & A opportunities outside the Permian Basin.

Analysts say most large U.S. companies, including supermajors such as ConocoPhillips and independent oil companies, have announced mergers and acquisitions, but others could join the consolidation wave.

Brent crude oil daily chart

At 8:53 on June 4, Beijing time, Brent crude oil was quoted at $78.08/barrel