U.S. Upstream Oil and Gas M&A Declines Amid Sustained Low Crude Prices

U.S. Upstream M&A Activity Contracts Significantly in Q3 2025

The U.S. upstream oil and gas sector recorded a substantial decline in merger and acquisition (M&A) activity during the third quarter of 2025, marking the third consecutive quarterly reduction. Deal values fell 28% quarter-over-quarter to $9.7 billion, signaling an end to the period of blockbuster takeovers observed in recent years, which saw deals totaling $192 billion in 2023.

Persistent Low Crude Prices Drive Downturn

This downturn is primarily attributed to persistently weak crude oil prices. During the July through September 2025 period, crude prices averaged around $65 per barrel, a notable decrease from the $75 per barrel average in the same quarter of the previous year. As of October 22, 2025, WTI crude oil futures were trading between $58.12 and $58.75 per barrel, with Brent crude between $61.01 and $62.78 per barrel.

Andrew Dittmar, a principal analyst at Enverus Intelligence Research (EIR), commented on the challenging environment:

"Crude prices in the mid-$60s or lower have made it challenging for sellers, particularly private equity firms holding oil-weighted assets, to justify divestitures. Many remaining shale M&A opportunities require higher pricing to make public companies willing to pay for undeveloped locations."

Specifically, only approximately 1,800 shale locations held by private equity are estimated to achieve a 10% return at $50/bbl WTI, while 6,700 locations demand higher prices to meet this benchmark, leading many firms to defer exits. The slowdown is also linked to a scarcity of premium assets within the Permian Basin, redirecting exploration and production (E&P) companies' focus elsewhere. Furthermore, a global supply-demand imbalance, with supply growth of 1.8 million barrels per day (mb/d) in 2025 substantially outpacing demand growth of just 700,000 mb/d, contributed to a market surplus that pressured prices.

Strategic Shifts and Opportunities Emerge

Despite the overall slump, the quarter did see notable transactions, albeit with a cautious approach to valuations. Crescent Energy (CRGY) acquired Vital Energy (VTLE) for over $3 billion in a deal structured with stock and assumed debt. Similarly, Berry Petroleum (BRY) completed a $717 million sale to California Resources Corporation (CRC). These all-equity combinations accounted for 40% of the quarter's total deal value and were struck at sub-20% premiums, setting a precedent for future SMID-cap (small and mid-cap) matchups.

Dittmar highlighted the evolving strategy:

"Consolidation among small and mid-cap companies is becoming an obvious strategic path forward in U.S. oil and gas M&A, as high-quality inventory from private sellers becomes scarce."

While oil-weighted deals have slowed, natural gas assets have emerged as a bright spot. Buyers maintain optimism regarding the long-term fundamentals of natural gas, propelled by the growth in U.S. liquefied natural gas (LNG) exports and increasing power demand from data centers. This demand provided a tailwind for Anadarko Basin dealmaking, with transactions in the region comprising 20% of the total quarterly deal value.

Contrasting Trends: Canadian Resilience

In contrast to the U.S. slowdown, Canadian upstream M&A activity continued strongly, nearly matching five-year full-year averages in the first half of the year. This resilience is underpinned by favorable economics, particularly within the Oil Sands. S&P Global Commodity Insights forecasts a record annual average output of 3.5 million b/d from Canadian oil sands in 2025, a 5% increase from 2024. This growth is driven by producers' focus on optimizing existing assets, which boast relatively low breakeven costs, estimated at an average of $27/bbl WTI for half-cycle production.

Outlook: Continued Prudence and Targeted Growth

Looking ahead, U.S. upstream M&A is expected to remain subdued in 2025, largely due to the persistent disparity between buyer and seller expectations amid oil price uncertainties. The market anticipates WTI prices to hover around $65/b over the next two years. This environment is likely to motivate further public company consolidation, particularly among SMID-cap E&Ps, with stock-for-stock swaps potentially outweighing cash deals. The strong demand for natural gas, driven by LNG exports and power generation, is anticipated to sustain deal flow in gas-weighted assets, highlighting a targeted growth area within an otherwise contracting M&A landscape for the U.S. oil and gas sector.