Prediction: The M&A Wave Will Usher In a New Era of Oil & Gas Production in North America

By Adam Hirschfeld, VP of Sales

Preparing for a New World

We’ve all been watching the wave of consolidation that has been sweeping the Oil & Gas industry with impacts across the US, Canada, and Mexico. It will have global repercussions, and it isn’t over yet. We expect more deals to make headlines before this wave has run its course. When the last swells have run ashore, we will be living in an entirely new kind of normal. Somewhere in the region of late 2024 or early 2025, we will find ourselves taking the first steps into an entirely new era of Oil & Gas production. And it will look decidedly different than the world we operate in today. 

The new era will be characterized by three seismic shifts:

For operators: We will see a fundamental shift in how they operate, from the Exploration & Production model in which they have worked over the past century, to a Portfolio Management approach to managing their assets.

For services companies: The players that remain will be challenged to improve how they operate, expand their capabilities, and become more accountable as they take on more and more responsibilities on behalf of their clients.

For the people who work in the industry: Technology and process innovation will reduce the number of people required to deliver energy projects while changing the skills required to work in this space, both in corporate offices and in the field.

There will be change elsewhere — trade agreements, policy, you name it — but when you look at the production side of the equation, these shifts will define the new era on the horizon. Here is why and how they will happen. 

Shift 1: Moving From Exploration & Production to Portfolio Management

It’s fair to say that the last 100 years have been about long-term bets on land assets, innovation at the wellhead, and getting better and better at moving into new territory and extracting maximum ROI from each mineral acre. Once this M&A wave is complete, available acreage, in large part, will be spoken for. The players that remain will have amassed vast swaths of acreage, and there will be two pressing questions: 

1. How can I manage this portfolio of assets as efficiently as possible?
2. How can I reduce my cost basis, reduce my carbon footprint, and also maximize the profitability of the assets I have?

That “reduce my carbon footprint” piece might raise an eyebrow or two, and I understand that. But if you take a long view, we can only expect pressure from the investment community to rise with regards to climate and emissions. 

In this new portfolio management approach, with massive swaths of (often contiguous) acreage to leverage, operators will be free to design their operations — and innovate — in ways that help their bottom line. One example is the electrification of the oil field. Take Exxon’s new footprint in the Permian following the Pioneer acquisition: They can electrify massive swaths of land, reducing the transportation and materials costs associated with running gas/diesel generators, while also reducing the emissions coming from each of their well sites.

The hard truth is that we spend considerable time getting from point A to point B in our business. A lot of money is spent on building roads and infrastructure to get back into the field. 

When you build a lease road, you might have to drive 20 miles to cover 10 because you’re going around land that is not in the current surface user agreement. Those who can expand on contiguous acreage, aggregate their surface access agreements, and aggregate their minerals have the ability to build the most direct routes. This results in the ability to build a larger central gathering facility and the most efficient electrification modes to ultimately save millions in transportation and construction costs. 

This same footprint also allows you to maximize in-field produced water disposal and more cost effective oil and gas takeaway, while also finding cost savings relating to site construction. For example, placement of production facilities can be optimized to service more wells, reducing the amount of production facilities required, and therefore reducing redundant equipment. When you have a larger facility, you can buy fewer (albeit larger) pieces of equipment. Larger, more central production facilities will also reduce lease operating expenses over time by requiring fewer lease operators to travel from one location to the next. And finally, the ability to build larger pads with more wells will enable operators to reduce the total pad count in a given region, along with the number of lease roads required to access those pads. All told, this will result in substantially less development cost and land obstruction overall, improving relations with land owners and reducing the environmental impacts of their operations.

Lastly, operators will have the luxury of optimizing the efficiency of their development program relating to lateral lengths and spacing. With the advent of horseshoe drilling I would expect continued innovation, with E&Ps having more flexibility in both the lateral lengths and overall breadth of that well. When you drill horseshoe wells, you effectively get two wells for the cost of one vertical section. To quantify this: If someone is drilling out a mile and coming back to where they started, they are getting a 2- to 4-mile lateral length, where they would have had to drill up to four surface vertical sections to get the same ROI. More continuous mineral acreage enables E&Ps to plan and innovate to get the most from their portfolio of assets.

The work of Oil & Gas operators will look decidedly different in this new era than it did in the last 100 years. With the focus on efficiently managing assets, maximizing profitability, and reducing one’s carbon footprint, both shareholders and the planet will benefit from the changes.

Shift 2: Supplier Consolidation Leads to Greater Innovation — and Accountability 

These are back-of-the-napkin numbers, but if we see 15% consolidation amongst Oil & Gas operators, expect to see that much and more amongst their suppliers. The suppliers that win out over the next 12 to 36 months will see massive growth. This will drive more consolidation in the space, but will also increase their level of accountability to clients. This shift will be marked by: 

Higher Burden of Proof on Delivery 

1. Did the supplier meet the full requirements of the work order? 
2. Did they meet the client’s objectives across a body of work?

Improved Data and Reporting

1. Are suppliers tracking the data points the client needs to be able to respond to audits and support the operator’s responsibilities to their investors? 
2. Are they providing that data in a manner that is consistent with their client’s operational needs? 
3. Do they meet the client’s environmental standards, from emissions to diversity to safety?

Service Innovation

1. Suppliers will have to keep pace with operators who have more resources than ever before to innovate in terms of how they operate.
2. Suppliers will be incentivized to stay ahead of the curve, and find ways to continuously improve their ability to deliver the best possible service at competitive prices. All this, while maintaining the lowest possible carbon footprint.

Across the board, these standards will only increase, and we will also see a shift from providing cost data and results retroactively to tracking of service delivery in real-time. In this new era, the suppliers who remain will reap tremendous rewards. But with great responsibility comes increased accountability.

Shift 3: A Changing of the Guard

The last thing that will define this new era of Oil & Gas production will be a shift to the role people play, both in corporate offices and in the field. We have an issue with a dearth of talent in our space. This is felt most keenly in the entry level roles. People simply are not enrolling in petroleum engineering programs — or coming out of high school and looking for a job in the oil patch — like they used to. It's one of the main concerns for Oil & Gas companies. 

But we are already starting to see Oil & Gas companies innovating to empower each and every person that touches a job site to do more.

Take directional drilling. Today you might have four people from a directional drilling company on the job site to manage one rig. Tomorrow you’ll have a remote directional driller sitting right next to the geosteering team in a command center on the 10th floor of an office in Houston. They can manage up to four rigs in a single day from their post, with just one person on site at each rig to support them. So with improvements to tech and process, you go from needing 16 people to only six to manage the same four rigs.

That’s just one example of many where we are seeing movement in this direction. We only expect this to accelerate as technologies like AI and robotics continue to revolutionize what is possible. In this new era, productivity will skyrocket. More and more “work” will be accomplished by each individual working within a given operation, all thanks to the innovation within this space. 

This shift will change the workforce Oil & Gas companies need to operate. It will demand new and different skills of the people who make the industry tick. It will also create opportunity for a new generation to come in and take the place of the boomers who are retiring. My hope is it will make the industry safer and more resilient than ever before.

Changes Are Coming, But the New Era Starts Now

This is by no means an exhaustive list, but these three are the three big themes that I believe will define the new era of Oil & Gas production that awaits, once the waves of consolidation come to an end. The companies who move from exploration and production to “portfolio management”, innovate through the consolidation, and solve for the talent crunch by empowering their people to grow with them will be the companies that win out. 

If you look around, you’ll see that the best and the brightest are already working to get a head start.

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Adam Hirschfeld is an industry veteran who worked in field operations and project management before shifting to leadership roles focused on business development in the labor project management space. As VP of Sales, he stewards the voice of the client to drive innovation across the Workrise suite of products. Adam lives in Colorado, where he enjoys skiing and hiking with his family.