Mergers in the U.S. upstream sector are set to decline in the current year, Enverus has predicted. Deal-making in the U.S. shale patch hit high gear with the U.S. energy sector leveraging high oil and stock prices to go on a $250 billion buying spree in 2023; however, the wave of consolidations has emptied pocketbooks and left fewer companies on offer. Still, the energy analytics firm has pointed out that the need for scale will motivate small and mid-cap E&Ps (upstream companies) to explore tie-ups, despite deal sizes potentially falling and the break-evens of acquired inventory rising.
That said, deal-making in the U.S. oil refining sector has stalled, with virtually no deals closed ever since independent refiner Par Pacific completed its $310 million acquisition of Exxon Mobil's (NYSE:XOM) Billings, Montana, plant in 2023. That selling price came in at the lower end of expectations with industry insiders estimating the oil major might get twice as much for the 63,000 barrels per day (bpd) plant. The refining sector is missing out despite the presence of plenty of willing sellers mainly due to widespread fears that the energy transition away from fossil fuels will leave many aging refineries as stranded assets.
The situation has become quite dire for the beleaguered industry. Shell Plc. (NYSE:SHEL) has been forced to close its 240,000-bpd Convent, Louisiana, refinery, after failing to find a buyer. Delta Airlines has so far had no takers for its 100-year old, 190,000-bpd Trainer, Pennsylvania, refinery despite placing it in the market six years ago. LyondellBasell Industries' (NYSE:LYB) 260,000-bpd Houston refinery is scheduled to close in 2025 after two failed attempts to sell. To aggravate matters, these companies are really struggling with high costs of maintenance for their aging plants leading to increasing breakdowns. At one point, giant refiners Valero Energy Corp. (NYSE:VLO), Marathon Oil (NYSE:MRO), and Phillips 66 (NYSE:PSX) together had the equivalent of 280,000 bpd of capacity offline due to planned and unplanned outages, a more than 20% jump from 2019. According to company filings, Phillips 66 spent $786 million on maintenance in 2023 alone. Meanwhile, LyondellBasell estimates its plant requires at least $1 billion in upgrades to continue operations.
By Alex Kimani for Oilprice.com
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