M&A activity in the traditional offshore energy sector likely to pick up this year
By Mark L. Jones, Nelson Mullins
Consolidation should continue onshore and offshore in the upstream, midstream and oilfield service sectors. The pace is likely to increase, especially given the economies of scale in offshore energy development, production and services, as well as the US government’s initiatives and desire for energy independence, once the trade uncertainties and conflicts around the world are minimized.
The biggest players in the Gulf of America are Exxon Mobil, Shell, TotalEnergies, Chevron and Eni. Deepwater and ultradeepwater activities in the Gulf likely will drive increases in production and activities offshore.
Offshore development, especially in the Gulf, focuses on larger deepwater reserves that can be highly productive. Technological enhancements have made offshore drilling safer and more environmentally friendly as well. However, offshore energy companies have been subject to even more uncertainties than their counterparts onshore.
Some companies are streamlining and focusing on their most productive assets. W&T Offshore sold its interests in blocks 385 and 386, and it is looking for more deals like its recent acquisition of shallow wells in the Gulf. W&T Offshore has interests in more than 52 offshore fields and is poised to complete acquisitions soon with its strong cash flow.
Shell and Equinor have agreed to merge their offshore portfolios. Exxon Mobil’s acquisition of Pioneer consolidates substantial positions in the Gulf. ConocoPhillips’ acquisition of Marathon creates a more fully integrated company, more efficient operations and cost savings.
Middle-market deals have shown some increase, with Talos purchasing some assets from Beacon Offshore and QuarterNorth Energy, becoming the fifth largest operator and acreage holder in the Gulf. In late 2023, Karoon Energy purchased assets from LLOG Exploration.
Regulations
In connection with President Donald Trump’s Executive Order 13795, “Implementing an America-First Offshore Energy Strategy,” the Department of the Interior’s Bureau of Ocean Energy Management (BOEM) and Bureau of Safety and Environmental Enforcement announced proposed changes to clarify and streamline financial assurance requirements (e.g., bonding) for the offshore oil and gas industry, providing more certainty to operators in the Gulf and allowing smaller operators to compete offshore.
Under regulations issued under the Biden administration, the BOEM regional director could determine that additional security is necessary to ensure compliance with the terms and conditions of a lease, including decommissioning liabilities (the costs and obligations associated with removing the infrastructure and equipment used in the exploration and production of offshore oil and gas). Using the broad discretionary criteria under the current regulations, BOEM had previously sought to implement broad changes to its financial assurance regime through guidance documents issued without prior notice and comment.
BOEM now proposes to clarify and streamline the evaluation criteria it would use to determine whether Outer Continental Shelf lessees, right-of-use and easement grant holders, and pipeline right-of-way grant holders must provide additional security above the prescribed amount of base bonds to ensure lease and grant obligation compliance. BOEM also proposes removing restrictive provisions for third-party guarantees and decommissioning accounts, and allowing the regional director to cancel bonds and third-party guarantees in certain circumstances not covered by the existing regulations.
Additionally, with the lifting of the pause on issuing liquefied natural gas (LNG) export permits, the industry should see more exports and the construction of offshore deepwater LNG projects soon given the strong international demand, increasing the importance of production offshore and the associated service providers to the operators.
The US offshore energy industry hopes that such clarifications will help it produce more oil and gas efficiently and economically while protecting American taxpayers from decommissioning risks. Such increases in productivity will simply enhance the consolidation momentum if BOEM can strike a good balance between encouraging offshore activity and protecting American taxpayers by restoring US energy independence.
