Oil and gas megadeals taper off as shale drillers target smaller deals

This trend began to emerge by the end of the second quarter, according to PLS, a Houston-based company that tracks oil patch deals. Drillers that made big purchases in the preceding quarters began using their capital to produce oil and gas from that acreage.

“It was just a natural turn from acquisition mode to execution mode,” Andrew Dittmar, senior analyst at PLS, told CNBC at the time.

Energy companies and private equity firms are now looking for deals in shale oil and gas fields beyond the Permian basin, the region in Texas and New Mexico where low-cost production sparked a land rush. Activity there slipped to three deals totaling $1.5 billion in the third quarter.

Buyers turned their attention to the up-and-coming Anadarko basin in Oklahoma and northern Texas, which attracted six big deals worth a combined $3.9 billion. North Dakota’s Bakken and the Eagle Ford region in Southeastern Texas both saw 5 deals get done, worth $4.9 billion and $698 million, respectively.

“If you haven’t made your mark in the Permian and gotten to scale, then it’s going to be too expensive to get there … so you’re going to deploy your capital somewhere else,” Dunleavy said.

In the near term, Dunleavy said he expects to see the brisk dealmaking typical of the fourth quarter, as companies hustle to close deals before year end. But looking forward, there is considerable uncertainty for energy deals.

At home, the energy merger market is dealing with the uncertainty of corporate tax reform and rising interest rates. Abroad, there is growing geopolitical tension in oil-producing regions and a question whether OPEC and other oil exporters will extend a deal to limit their output.

“From a deals perspective, we like certainty,” Dunleavy said. “We like certainty and we like high prices.”