I Wanna Dance With Somebody - What's Driving the Energy Industry's Latest Cycle of Consolidation?

RBN Energy Blogcast

The energy industry’s upstream products — crude oil, natural gas and NGLs — are commodities, so the lowest-cost producers generally do best, especially if they are well-connected to downstream markets. Due in large part to the intensity of competition, finite drilling locations, the constant need for capital investment and the chilling effect of political headwinds, the industry is in the middle of a consolidation cycle that has enabled a select group of top-tier E&Ps to build scale — and longer-lasting inventories — in the most productive parts of the most lucrative shale plays. That scale, in turn, helps these Shale Era winners reduce their costs, gain market share and — important in 2023 and beyond — return a big slice of their free cash flow to investors as dividends and stock buybacks. In today’s RBN blog, we discuss what’s driving that “urge to merge” and what it means for industry players large and small.