• Dealmaking has reduced availability of inventory
• Upstream most likely to benefit from less antitrust review
• Industry could clash with Trump’s low gas-price pledge

Donald Trump’s return to the White House will all but guarantee a friendlier regulatory environment for the oil and gas industry, but it will not necessarily boost M&A activity as the pool of attractive assets continues to shrink and companies re-evaluate their organic growth opportunities amid potentially looser permitting rules, according to dealmakers.

Trump has picked Chris Wright, the former CEO of fracking services company Liberty Energy, as his Energy Secretary nominee and has pledged to reverse the pause on liquefied natural gas export permits and expedite leasing of federal lands for drilling. “We have more liquid gold than any country in the world,” Trump said in his victory speech on 6 November. “More than Saudi Arabia. We have more than Russia.”

The US produced an average of 13.2 million barrels a day in September, 46% more than Saudi Arabia’s output and 44.3% higher than Russia’s, according to data from the US Energy Information Administration and the International Energy Agency.

“The cornerstone of Trump’s directive is economic expansion and to unleash the energy Kraken,” said Dan Romito, managing director at energy-focused financial services platform Pickering Energy Partners. “If that means that deals have to be approved faster in order to facilitate growth, so be it.”

Trump announced today that he will nominate current Commissioner Andrew Ferguson to replace Lina Khan as chair of the Federal Trade Commission (FTC). Khan’s removal has been hailed by the oil and gas industry.

Under Khan, the FTC made second requests on approximately 70% of upstream M&A deals worth more than USD 5bn, compared to less than 5% of such transactions that occurred in the previous 17 years, according to Jon Hughes, chairman and CEO of energy-focused boutique investment bank Petrie Partners. As a result, under Khan the median time from announcement to close for upstream transactions worth more than USD 5bn was 223 days, whereas before Khan took over it was less than 90 days, he added.

Ferguson’s record as an FTC Commissioner could be one of “the best indications of the direction the FTC might take,” an antitrust lawyer said. It could mean a “decline in this kneejerk anti-merger activity,” and a return to a more “traditional” focus on horizontal overlaps, this source added.

For companies in the fossil fuel space, “it’s fair to say that they all believe that their business will be easier going forward,” the antitrust lawyer added.

Streamlining regulatory reviews could encourage more upstream companies to pursue M&A deals, according to Travis Wofford, chair of Baker Botts’ corporate department in Houston and vice chair of its global M&A practice. “Many buyers that weren’t allowed to buy under the Biden administration can now finally go in and acquire, because they’re not going to have the same regulatory overhang, whether that’s antitrust or otherwise.”

However, the most recent wave of dealmaking has reduced the availability of asset inventory in the market, said J.P. Hanson, managing director and Global Head of Houlihan’s Oil & Gas group. That has resulted in prospective buyers being more selective, which has recently slowed the typical pace of deal-making, he said.

There have been more than 100 M&A transactions in the US upstream sector since the start of 2023 for a deal volume of USD 277.3bn, according to Mergermarket data.

M&A transactions must still make economic sense despite the regulatory tailwinds. “(A deal) still has to provide some kind of accretive value,” said Pickering’s Romito. “It’s not necessarily Trump calling the shots. It’s Trump showcasing an avenue of opportunity and the investment community dictating how fast you’re allowed to drive.”

The oil and gas industry – deeply scarred by past commodity busts – has maintained its fiscal discipline throughout this recent wave of dealmaking. The net debt ratios of Exxon Mobil [NYSE:XOM] and Chevron [NYSE:CVX], for example, are only slightly up following their recent multi-billion acquisitions, according to financial filings.

Double-edged sword

A friendlier regulatory environment could – ironically – cause oil and gas players to choose organic growth over M&A.

“There was a ceiling on growth because of the regulatory environment during the Biden-Harris administration. Now that the regulatory onus has been alleviated, your pathway to growth doesn’t necessarily mean you have to make a deal,” said Pickering’s Romito. “The organic route to growth is a much more feasible path towards growth.”

Trump, for instance, is expected to shrink the size of national monuments to allow for more drilling on public lands, according to Mona Dajani, global co-chair of Baker Botts’ energy infrastructure & hydrogen and co-chair of the energy sector. “This represents an opportunity for producers to position themselves long-term in the market,” she said.

During his first administration, Trump reduced the borders of two national monuments in southern Utah.

Houlihan Lokey’s Hanson, however, is skeptical that such moves could by themselves increase well drilling. Trump “can facilitate permitting, but nobody’s going to make the investment in permits if the hydrocarbons aren’t there and/or if wells aren’t economic to drill,” he said. “If the industry finds itself with oil being oversupplied relative to global demand, then commodity prices will come down and it would become less economic to continue drilling.”

Drillers, which tend to prosper when crude prices are high, could also clash with Trump’s pledge to reduce gasoline prices. In fact, one sector banker predicts Trump will be worse for oil and gas, except for those companies looking to drill in the Gulf of Mexico and Alaska, as he will push for a crude price of around USD 50.

Brent crude price hovered around USD 70 at the time of publication.

“Under Trump, U.S. oil production increased significantly, contributing to lower oil prices for much of his term. Under Biden, oil prices rose due to various factors including stymied growth in U.S. oil production,” said Chris Cottrell, a partner in Seyfarth’s energy transactions practice in Houston.

“In other words, domestic production did not surpass the prior record set during the Trump administration until the end of Biden’s third year in office so many have attributed this slowdown in the growth of our oil supply to higher oil prices,” he added.