E&P Merger Analysis: Do M&A Synergies Materialize?

It’s not hard to recall times when we’ve heard predictions of an upturn in M&A activity, only to see the next couple of quarters go by with little M&A of substance. In 2019, setting aside Occidental Petroleum Corp.’s purchase of Anadarko Petroleum Corp., M&A activity came to just half of the average M&A total of the past 10 years, according to Enverus data.

Energy’s performance in the broader market hasn’t helped. The energy sector weighting in the S&P 500 has fallen below 5%, and energy has been the worst performing sector in five of the past six years. But many observers have cited the need for greater scale in order for producers to compete, especially when ener­gy investors increasingly prioritize returns and stock buybacks over growth.

What’s tough to determine is the track re­cord of M&A activity as regards the delivery of synergies that are expected to accrue to a transaction over time and help make mergers more attractive for investors.