After keeping a tight grip on their wallets for the past several years because of lower oil prices, oil companies went on a spending spree last year. Overall, producers forked over $84 billion to buy both rival companies and asset packages, which was the highest level since 2014, when merger-and-acquisition activity topped $100 billion, according to a report from Drillinginfo. 

However, with oil prices nosediving to end the year, it not only froze the M&A market but could also affect whether announced deals close. Therefore, investors shouldn't expect 2019 to be as active as last year for wheeling and dealing in the oil patch.

Drilling down into the top deals

Oil companies spent most of the past few years reshaping their portfolios by selling non-core assets and using that cash to buy drillable land in the Permian Basin. While that trend continued last year, there was also a notable strategy shift in the sector toward corporate acquisitions, which fueled the surge in overall spending on M&A:




Deal Value

M&A Type

Focus Region 




$10.5 billion


Permian, Eagle Ford, and Haynesville

Concho Resources (NYSE:CXO)

RPS Permian


$9.5 billion



Diamondback Energy



$9.2 billion




Newfield Exploration


$7.7 billion


STACK shale

Chesapeake Energy (OTC:CHKA.Q)

WildHorse Resource Development


$4 billion


Eagle Ford

TPG Pace Energy



$2.7 billion


Eagle Ford

Encino Acquisition

Chesapeake Energy


$1.9 billion



Flywheel Energy

Southwestern Energy


$1.9 billion



Denbury Resources (NYSE:DNR)

Penn Virginia


$1.7 billion


Eagle Ford

Vantage Energy

QEP Resources (NYSE:QEP)


$1.7 billion



Data source: Drillinginfo.

Oil giant BP made the biggest splash with its transformational deal to buy most of BHP Group's shale assets for $10.5 billion. The company beat out several big oil rivals that also reportedly bid on some or all of BHP's shale assets because it saw those properties as "world-class" assets that would upgrade and reposition its U.S. onshore business. The biggest prize was BHP's position in the Permian, which has been a key growth driver for the industry in recent years because of its low-cost, oil-rich resources.

Another notable deal was Concho Resources' acquisition of RSP Permian. The company saw this transaction as providing a "road map" for in-basin consolidation in the Permian. That's because it thought that by consolidating, Concho could leverage its larger scale to squeeze out more than $2 billion in cost savings in the coming years. While it took some time, the consolidation wave started in the second half of the year, as Diamondback Energy bought fellow Permian-focused peer Energen while Cimarex Energy agreed to buy Resolute Energy for $1.6 billion in late November.

A final noteworthy aspect of last year's M&A wave was that companies started turning their attention outside the Permian for growth. Both Chesapeake Energy and Denbury Resources made late moves to buy Eagle Ford-focused drillers. In each case, the companies saw these deals accelerating their strategic plans by enabling them to grow their oil production at a faster rate while also enhancing their balance sheets, since the target companies had much lower debt levels and would improve the buyer's leverage ratios.

The silhouette of two people shaking hands with oil pumps in the background.

Image source: Getty Images.

What to watch in oil M&A in 2019

With oil prices plunging over the last three months of 2018, it will probably put a damper on corporate M&A in the coming year. It's quite possible that it might even affect some of the deals signed late last year, with Denbury's merger the likeliest to have problems. Several large investors plan to vote against the acquisition because Penn Virginia isn't an ideal fit. Meanwhile, several oil executives have sworn off corporate M&A while other key buyers, such as Diamondback, need to integrate recent deals before diving back into the market. As such, 2019 probably won't bring a repeat of last year's merger wave unless oil prices rebound and recently closed deals show signs that they're paying off.

As a result, private capital, such as private equity-backed companies, probably will return to a leading role as key drivers of M&A activity in 2019. After making up 46% of the transaction volume in the fourth quarter of 2017, private equity accounted for only 7% of the deals in the last period of 2018, according to Drillinginfo. However, with oil companies needing to sell assets to continue shoring up their balance sheets, private equity remains one of the few buyers with the access to capital to close deals. In addition to buying asset packages, private capital players are also potential corporate buyers, which was already the case this year, as a large hedge fund offered to take QEP Resources private.

Caution is the watchword in 2019

Oil companies went on their biggest M&A binge in four years in 2018, fueled in part by higher oil prices. However, with crude crashing 40% from its peak to end the year, it's making oil companies more cautious heading into 2019, especially since investors punished most of last year's corporate buyers by selling off their stocks. Oil companies could therefore avoid making deals this year, instead focusing on returning more cash to shareholders, which gave investors in one oil stock reason to cheer last year.

Check out the latest Chesapeake Energy earnings call transcript.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.