Following years of strong dealmaking activity in the oil and gas industry, global oil and gas merger and acquisition, or M&A, activity plunged to a five-year low in 2013, as companies cut back on asset purchases and instead focused on developing their existing base of assets. Let's take a closer look.

Why global oil and gas M&A fell last year
According to a recent IHS energy M&A research report, the total transaction value of global oil and gas M&A deals fell to $136 billion in 2013, down by nearly 50% from $250 billion in 2012.

The decline in dealmaking activity last year followed three years of robust global oil and gas merger activity, when companies acquired more than $600 billion of assets over the period 2010-2012. By contrast, 2013 saw many energy companies cut back on new acquisitions, opting instead to develop recently acquired acreage.

Chesapeake Energy (CHKA.Q), for instance, devoted more than 80% of its total capex toward drilling and completion activities last year, down significantly from an average of 50% over the period 2010-2012. As a result of this change in capital allocation, as well as major improvements in efficiency, the company was able to grow oil production by 23% last year, even as its overall capex levels plunged by nearly 50% year-over-year.

The trend of allocating a greater portion of capital spending toward drilling and completion activities looks likely to continue this year. For instance, Kodiak Oil & Gas (NYSE: KOG), an oil and gas producer with assets located almost exclusively in the Williston Basin, recently announced that it plans to devote roughly 95% of its $940 million 2014 capital budget toward drilling and completion, as compared to an initially planned 77% of its capital budget in 2013.

The biggest spenders in 2013
Chinese and other national oil companies (NOCs) were among the largest buyers in 2013, accounting for five of the ten largest deals struck last year. With Chinese energy demand expected to grow sharply in coming years, Chinese state-owned oil companies have been aggressively buying up oil and gas assets all over the world, and have spent more than $100 billion on acquisitions since 2009.

One of last year's most important deals by an NOC was China National Petroleum Corporation's (CNPC) acquisition of a 8.33% stake in Kashagan, the massive oilfield in Kazakhstan that is being jointly developed by a consortium of partners including ExxonMobil (XOM 0.02%), Eni (E -2.13%), and Royal Dutch Shell (RDS.A). CNPC jumped at the chance to acquire an interest in the project after ConocoPhillips (COP -0.43%) sold its stake to the Kazakh government for $5 billion in favor of pursuing higher-return opportunities in key onshore U.S. plays, such as the Bakken, Eagle Ford, and Permian Basin.

Decline in unconventional resource acquisitions
Another interesting fact from the IHS report was the sharp decline in spending on unconventional resource acquisitions, which plunged by more than 50% to roughly $40 billion in 2013. After spending over $200 billion on unconventional acquisitions over the period 2010-2012, energy producers became more cautious in 2013, and instead decided to unlock value from their existing acreage.

In fact, of the twenty largest deals last year, only one was a bid for unconventional resource acreage. Interestingly, however, that transaction was Devon Energy's (DVN -0.89%) $6 billion acquisition of Eagle Ford assets from privately held GeoSouthern Energy Corp., which was the largest global oil and gas acquisition of the year.

Devon was able to acquire the prized assets thanks to a combination of debt and its stellar balance sheet, which had $4.3 billion in cash and cash equivalents as of September 30. The newly acquired assets include approximately 82,000 net leasehold acres that are mostly held by production and are expected to generate roughly $800 million in annual free cash flow for the company starting in 2015.

What to expect in 2014
Investors can expect one of the major trends highlighted in the IHS report -- that of an increased focus on drilling, evaluation, and completion activity in North American resource plays -- to continue this year, with many firms planning to devote larger shares of their capital budgets for this purpose. According to Barclays, global energy companies will spend $723 billion on upstream activities this year, up 6.1% from $682 billion in 2013, with growth led by North America, the Middle East, Latin America, and Russia.