Oil and Gas Trends

Upstream Industry Highlights

Capital Discipline & Technology Investment Drive Profitability: US upstream companies have maintained a strong focus on capital discipline, digital transformation, and strategic acquisitions over the past decade. This approach contributed to a 7% increase in net income from 2014 to 2023, despite an 18% decline in oil prices, demonstrating resilience and operational efficiency.

Natural Gas Prices Expected to Rise, Supporting Growth: The Australian government is conducting a comprehensive review of its Domestic Gas Security Mechanism and the wholesale price cap to address projected domestic gas shortages by 2028. The review will consider measures such as a domestic reservation scheme and underwriting LNG imports. These potential policy shifts have raised concerns among LNG producers about the impact on exports and international investment, highlighting the delicate balance between domestic energy needs and global market commitments.

Efficiency & Resource Capture Are Renewed Priorities: Upstream operators are intensifying their focus on efficiency, leveraging AI and advanced technologies to optimize costs and production. Additionally, there is a resurgence in resource capture strategies, including conventional exploration and selective deals that provide immediate reserve additions, signaling a shift toward portfolio longevity and capital discipline.

A Year of Transition for Upstream M&A

The upstream oil and gas sector entered 2025 on the heels of record-breaking M&A activity, but the landscape is quickly evolving. While the first quarter saw $17 billion in deals—the second-best start since 2018—the momentum is facing new headwinds. What’s driving these shifts, and how should upstream professionals position themselves in this dynamic environment?

2025 M&A Activity: A Strong Start, but Clouds on the Horizon 

The year began with a flurry of dealmaking, highlighted by Diamondback Energy’s $4.08 billion acquisition of Double Eagle IV in the Permian Basin and a $4.3 billion dropdown to Viper Energy. These transactions alone accounted for nearly half of the quarter’s total deal value, underscoring the dominance of well-capitalized players in premium acreage. However, outside these headline deals, buyers are encountering limited acquisition opportunities and steep asset prices, setting the stage for a potential slowdown as the year progresses.

Key Drivers: Scarcity, Valuations, & Market Caution

Several forces are shaping the current M&A climate:

• Scarcity of High-Quality Inventory: Prime shale acreage, especially in the Permian, is increasingly hard to come by, driving up valuations and making it difficult for smaller operators to compete.

• High Asset Prices: Sellers are reluctant to lower prices, aware of the value of their remaining inventory, while buyers are constrained by weakening crude prices and tighter capital discipline.

• Market Volatility: Falling oil and equity prices are making it harder to justify aggressive dealmaking, leading to a standoff between buyers and sellers.

Global & Regional Trends: North America Leads, but Faces Headwinds

North America remains the epicenter of upstream M&A, with nearly $80 billion in market opportunities. However, after a cycle of mega-mergers and consolidation, activity is moderating. In South America, deal values surged in 2024, but prospects are mixed due to shifting regional strategies and halted divestment programs by major players like Petrobras. Globally, fiscal and geopolitical challenges—such as Middle East tensions and the Ukraine conflict—are also weighing on deal activity.

Strategies for Success: Opportunities Amid Uncertainty 

Despite the challenges, opportunities remain for agile operators:

• Conventional Plays: With 57 deals totaling $6.25 billion in Q1, conventional assets offer entry points for those priced out of premium shale.

• Creative Deal Structures: Targeting less consolidated basins, leveraging undeveloped inventory, and forming strategic partnerships can help unlock value.

• Selective Acquisition: Buyers are becoming more discerning, focusing on assets with strong cash flow potential and operational synergies.

Preparing for the Next Act in Upstream M&A

2025 is shaping up as a year of recalibration for upstream M&A. The market is shifting from a period of exuberant consolidation to one marked by selectivity, caution, and innovation. For upstream professionals, success will depend on a clear understanding of market dynamics, disciplined asset evaluation, and the agility to seize opportunities as they arise.