Global oil and gas M&A activity was red-hot in 2021. In U.S. shale basins, dealmaking reached an eight-year high value of $59.6 billion, with the majority of deals in the Permian Basin.

Now with prices soaring to past $110 per barrel, there is “plenty of room for megadeals,” according to Jason Bennett, department chair of global projects at Baker Botts.

“Consolidation is still order of the day…There is no doubt that the larger oil and gas companies are likely to find more assets,” Bennett told Hart Energy’s Faiza Rizvi.

While soaring prices, of course, means higher earnings for oil and gas companies, the question arises what the companies will do with those earnings in the short term, Bennett noted.

“Are they going to do stock buybacks? Are they going to buy other companies? Are they going to reinvest in drilling? The companies can choose to do each of those, but higher prices and supply disruptions coming out of the Russian-Ukrainian conflict, will probably drive them more toward drilling,” he said.

Bennett also noted that investments in the oil and gas sector will continue because even though energy transition is certainly happening, recent instability of markets has shown that oil and gas will remain critical to energy security for a long time.

“You will see return of some public sector investors into oil and gas in a way that they had not contemplated a year ago. Some of it is because of higher returns; some is because the industry has responded to ESG concerns,” he said.

Meanwhile, rising pressure for public companies to decarbonize is bringing more upstream assets to the market. But who will buy them?

According to Bennett, both private equity and traditional oil majors will continue to invest in these assets.

“Private equity has always been a huge player and will continue to be a huge player for oil and gas,” he said. “I don’t see them retreating from oil and gas anytime soon. I think they’ve got plenty of funds available both on the debt and equity side to invest in oil and gas assets.”

Jump to a topic:
  • Dealmaking activity (0:23)
  • Equity and debt markets (1:21)
  • ESG and financial priorities (2:34)
  • Who will buy upstream assets? (4:27)