Bigger, stronger, more efficient: That is currently the mantra of the US oil sector. As you may have noticed, there have been massive consolidations taking place there in recent months.

For example, the US oil giant Exxon Mobil has announced the acquisition of competitor Pioneer Natural Resources for nearly $60 billion. Shortly thereafter, Chevron, the second largest player, followed suit with its $53 billion takeover of Hess Corp. And at the end of 2023, the Warren Buffett-backed player Occidental Petroleum also reported progress in the acquisition of CrownRock for nearly $11 billion.

And now, another mega-deal is on the horizon. This time, the focus is on Diamondback Energy and Endeavour Energy. According to Diamondback, the company plans to pay around $26 billion to acquire its rival Endeavour, including its debt.

Diamondback and Endeavour: Why the Permian Basin is attracting interest Background: Both companies are active in the Permian Basin, a large sediment basin in the southwestern United States. Permian is considered the largest oil field in the US and one of the largest in the world. In addition, the area offers significant amounts of natural gas, which can be pumped out of the ground with new fracking technologies and then shipped as LNG (liquefied natural gas) to countries like Germany.

Overall, there are estimated to be up to 46 billion barrels of oil equivalent in the Permian Basin. In addition, there has been aggressive development of infrastructure in recent years – including new pipelines and refineries. All of this makes the Permian Basin an incredibly high-growth asset for the US economy, with the potential for new jobs and billions in tax revenue.

Merger: strong synergies and higher profit margins possible If the deal between Diamondback and Endeavour is successfully completed, the combined company would become the third largest player in the Permian Basin, behind Exxon Mobil (plus Pioneer) and Chevron (plus Hess). Diamondback and Endeavour would produce a combined 816,000 barrels of oil equivalent per day (boepd), while Chevron produces 867,000 and Exxon Mobil produces around 1.3 million.

The key: Through the merger, Diamondback and Endeavour could generate lucrative synergies – similar to other mergers currently being pursued in the Permian Basin. These synergies include joint exploration, bundled use of infrastructure, and unified management. The goal is to significantly reduce the cost per barrel of oil equivalent while expanding output through new production sites. Diamondback and Endeavour expect the combination of their processes to result in savings of $550 million per year.

The stock market seems to like the deal. The prospect of higher profit margins caused Diamondback’s stock price to rise by around 10% on February 12. The deal is expected to be completed in the fourth quarter of 2024. Observers do not anticipate much resistance from antitrust authorities – also because increased oil production is in the interest of the US government.

My conclusion for you: two important insights The consolidation of the US oil sector offers two important insights for us as investors. First: The fact that influential companies are willing to invest billions in expanding oil production underscores the continued importance of fossil energy resources and their potential for profit – despite criticism from climate activists.

Second: The billion-dollar deals are another positive sign for the US economy, as they demonstrate confidence in the economic recovery. Currently, it appears that the world’s largest economy is running very robustly despite macroeconomic obstacles. Economists refer to this as a „soft landing“ – avoiding a recession.

From this, we can draw optimistic signs for other commodities as well – especially for industrial metals. While the metal sector is currently under pressure due to still-high interest rates, the fact that the US economy is recovering much better than originally thought should support demand for commodities such as copper or iron ore – especially since interest rate cuts are only a matter of time.

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