By: JEREMY OSTERBERGER President BIC Alliance
Peel back the M&A deals in the O&G and petrochemical industries over the past two years and you’ll see two general paths: betting on business as usual or preparing for the future regulatory environment.
On the business-as-usual front, for example, data from Wood Mackenzie reveals that 2023 M&A activity in the Permian Basin alone was over $100 billion, with ExxonMobil’s merger with Pioneer Natural Resources and Chevron’s acquisition of Hess Corporation being two of the most prominent. Clean energy M&A deals by energy and industrial companies have also seen an uptick recently — consider Deloitte’s finding that 2022 clean energy M&A by O&G companies hit $32 billion.
Industry executives grappling with the decision between these two general directions should acknowledge that there is no straightforward or definitive answer. It would be senseless for executives to write off nonrenewables moving forward; nonrenewables aren’t going anywhere anytime soon. However, leaders still need to heed regulations, such as the EPA’s December 2023 final rule that seeks to lower methane and other emissions, as well as the EUs decision to decrease methane emissions from imports by 2030. Moreover, the current U.S. administration is pushing for clean energy, with President Biden’s Inflation Reduction Act (IRA) spurring a slew of investments in the area. According to a Goldman Sachs article in October 2023, a “total of 280 clean energy projects have been announced across 44 U.S. states in the IRA’s first year, representing $282 billion of investment.” Executives must acknowledge that renewables will increasingly have a role in the industry.
With each M&A deal, executives are pulling their companies into one of the two general directions. Crunching the numbers, assessing risks, analyzing the regulatory environment and seeking majority consensus with board members and shareholders are all critical factors that industry executives must weigh before deciding which M&A deals to prioritize. But there are two other factors that executives should carefully contemplate before moving forward: corporate mission and long-term corporate vision.
Each merger and acquisition further cements a company’s corporate mission. Executives must have a clear understanding of how each M&A aligns with their companies’ long-term growth trajectories. To accomplish this, they should work backward and pinpoint their corporate mission and vision before pursuing these kinds of opportunities. In other words, what is the company’s mission? What is the company known for, and does it want to change that perception? What does the company want to accomplish five, 10 or 15 years down the line? What is the balance the company wants to strike between the looming regulatory future, investors’ appetite for ESG measures, generating good rates of return for investors and shareholders and providing the public with energy in the interim? These are just some of the questions industry executives, as well as other stakeholders, should reflect on and answer in 2024.
Robust corporate missions and clear long-term visions not only contribute to more strategic approaches to M&A opportunities but also streamline the post-acquisition processes. When an M&A deal fits into a company’s mission and vision, stakeholders are more likely to integrate well with the selling party.
However, determining corporate missions and long-term visions does not lock executives into either-or decisions in the M&A landscape. A company could make an acquisition in the renewables space one year and another in the nonrenewables space the next. Of course, executives should not pursue an M&A deal if other factors are precarious, such as a high level of deal risk or mismatched personalities on the buyer and seller sides. Moreover, missions and visions can and do evolve, so executives should regularly reassess both and update their M&A strategies accordingly.
Ultimately, what matters is that each M&A deal aligns with a company’s existing corporate mission and long-term vision — and positions it for market resilience.
For more information, contact Jeremy Osterberger at (281) 538-9996.
