A pair of star-crossed corporate entities—one in the Permian, the other in Appalachia—endowed with valuable assets; alas, their acreages are not contiguous.

We don’t know if there was anything to the Bloomberg report that Pioneer Natural Resources explored a merger with Range Resources. We do know the market’s cheerleaders for Range screamed, “Go for it!” while Pioneer’s backers took more of a “wait, what?” approach.

And we know Pioneer’s emphatic statement that it was “not contemplating a significant business combination or other acquisition transaction” resulted in a quick recovery for its jolted stock price, while Range’s shares—which jumped 12% on the news—swiftly deflated.

For its part, Range CEO Jeff Ventura told analysts his company was in a great position and didn’t need to pursue any kind of merger or acquisition. Executives then dodged questions about whether discussions had actually taken place.

But news of this deal-that-wasn’t reflected more than just gossip run amok. The report was a representation, of sorts, of the state of energy M&A.

Pioneer is a preeminent oil-focused E&P in the Permian Basin. The Permian accounted for 28% of shale M&A deal value in 2022, Deloitte reported in its “Oil and Gas M&A Outlook 2023.”

Range is a leading natural gas and NGL producer in the Marcellus Shale. Last year, 82% of global midstream deals involved natural gas infrastructure as control of the supply chain increased in importance.

New drivers of M&A

The soaring price of oil in 2022 might have been enough on its own to trigger a transaction or 30, even in geographically disparate basins. But we live in a different world than when M&A deals were driven by the price of crude.

“The old drivers of M&A activity, such as investing and acquiring for growth and increasing market share, seem to have been replaced by new drivers,” Amy Chronis, Deloitte’s vice chair and U.S. energy and chemicals leader, said in the outlook’s executive summary.

Topping the list of drivers is energy security, which emerged as a huge factor in M&A in the wake of Russia’s invasion of Ukraine and subsequent drastic reduction of natural gas exports to Europe. LNG assets, in particular, have grown in importance as U.S. exports rose and gas prices skyrocketed in Europe and Asia last year.

Driver No. 2 is operational excellence, in which consolidation is a tool to increase efficiency and enhanced use of technology to increase productivity. M&A in the Permian has revealed the power of capital discipline. As “drill, baby, drill” gave way to “chill, baby, chill,” companies have emphasized acreage consolidation and strategic expansions.

In 2022, Permian deal valuations fell on a per-acre basis. It’s not that surprising—most of the best acreage was gobbled up in previous years. But last year, the price per boe reached its highest level since 2014. That M&A declined in the richest basin during that time underscores how oil price has been dethroned.

A Pioneer-Range deal would have harkened back to the grow-grow days of the shale revolution. In the iPhone 14 era, investors are more interested in free cash flow.

But free cash flow as clean cash flow. Driver No. 3 shows how the energy transition casts its long, clean shadow over virtually all oil and gas activity these days. Clean energy accounted for about 15% of oil and gas M&A value in 2022, about 80% of which involved biofuels, and combined solar and wind assets.

Driver No. 4 illustrates oil and gas companies’ incursion into clean energy. About one-third of joint ventures by oil and gas companies are now in the clean energy space, Deloitte said, citing data from Refinitiv Eikon. The highest numbers are in hydrogen and related fuels (ammonia, nitrogen, sustainable aviation fuel), trending toward a growing mix of sources, fuels and carbon-capture programs.

Finally, more than 70% of deals during the past five years involve a company buying another with a better ESG profile—marrying up in the energy transition sense. This is particularly the case with larger independents and supermajors buying ESG-friendly assets. ESG plays less of a role in transactions made by smaller and mid-sized companies.

For the year ahead, Deloitte expects more of the same: a continuation of cautious consolidation and an accelerated pivot toward clean energy. Capital discipline encourages deals involving contiguous acreage, so no wandering eyes in the direction of other basins.

Threats to M&A activity include the macroeconomic and capital market environments, carrying with them the risks of a recession or slowdown. Geopolitically, the EU’s embargo on Russian oil and global sanctions on Russia increase uncertainty generally, as well as in deal making.

And a weaker demand outlook for hydrocarbons driven by acceleration of the energy transition—well, nothing ruins the mood for consolidation like an existential threat.