Two big targets for majors are Brazil, which is holding lease auctions for offshore assets with low-cost production, and the U.S. shale fields, where drillers use advanced technology called hydraulic fracturing to break up rock formations and free oil and gas.
Pittsburgh-based gas driller EQT Corporation's $8.2 billion purchase of fellow fracker Rice Energy was last year's biggest U.S. exploration and production deal. Exxon's $5.6 billion acquisition of Permian basin companies owned by the Bass family ranked second.
Brian Lidsky, managing director at Houston-based oil and gas advisory firm PLS, says big independents and the oil majors could make substantial purchases in 2018 to consolidate their position in the shale patch or enter hot areas this year.
"For the supermajors, the U.S. shales may be just the portfolio medicine needed to repair short-, mid- or long-term portfolio damage as a result of the last several years of severe exploration cutbacks," Brian Lidsky, managing director at PLS, said in a briefing on 2017 dealmaking.
Five wild cards to watch in oil and gas M&A in 2018 - PwC
- U.S. tax reform impacts
- Repatriation of foreign cash
- Trump's biggest-ever U.S. offshore oil and gas auction
- Oil and natural gas prices
- Rising interest rates and borrowing costs
A few factors could create headwinds for dealmaking.
Analysts stress that many U.S. drillers have made promises to shareholders to focus on financial discipline rather than production growth, and may only do deals that boost efficiency and cut costs.
But Wood Mackenzie speculates that investors might not remain so stubborn with U.S. crude prices at three-year highs above $60 and a corporate tax cut windfall on the horizon.
However, the impact of U.S. corporate tax cuts on energy M&A is uncertain, according to PwC. While the lower tax rate and other provisions could free up cash for some companies, the firm notes that borrowing costs could rise for others due to changes in rules on deductions.