Oil and Gas Sector Sees 60% Drop in US Upstream Dealmaking Amid Volatile Market Conditions

US upstream oil and gas dealmaking plummeted 60% in the first half of 2025, totaling just $30.5 billion compared to the same period last year. Market experts attribute this dramatic decline to commodity price volatility, with Brent crude fluctuating between $57 and $75 per barrel in the second quarter alone.

“Volatility in commodity and equity markets raised a major yellow flag for M&A, slowing the pace of dealmaking,” explains Andrew Dittmar, Principal Analyst at Enverus Intelligence Research. “That added an additional barrier to a market that was already challenged by the lack of remaining attractive opportunities for public E&Ps, especially in the Permian Basin.”

Despite the dealmaking slowdown, industry fundamentals suggest potential stabilization ahead. The International Energy Agency projects global oil supply growth of 1.8 million barrels per day in 2025, substantially exceeding expected demand growth of 700,000 barrels per day. This supply cushion could provide a buffer against geopolitical shocks and lead to more consistent pricing through 2030.

Natural gas markets have demonstrated resilience, recovering from early-year lows as seasonal demand patterns and infrastructure constraints provided support. The sector continues to benefit from structural changes in global energy consumption, particularly the transition from coal to natural gas in power generation and growing international LNG trade.

Natural gas liquids (NGLs) have emerged as a particularly promising growth segment, with production forecast to increase by 2 million barrels per day to 15.5 million barrels per day by 2030. This growth is primarily driven by rising petrochemical feedstock demand, with Asia accounting for 65% of LPG demand growth led by China and India.

According to the IEA Oil Market Report, “US gas liquids inventories rose by 79 million barrels in Q2 2025, buoyed by robust US NGL supply and lower exports due to a temporary export license requirement for ethane.” The report also notes that “China’s new policies aimed at improving its energy security are positioning oil companies as long-term strategic storage partners for the government, effectively removing these volumes from the global market.”

Australian Unconventional Gas Development Gains Momentum

Australian unconventional gas development represents a significant growth opportunity, with recent technical achievements demonstrating commercial viability in key basins.

Beetaloo Energy (formerly Empire Energy) recently completed the longest fracture stimulation in the Beetaloo Basin, spanning 2,955 meters across 67 stages in its Carpentaria-5H well. Managing Director Alex Underwood called it “a historic event for Beetaloo Energy Australia and for the basin.”

The technical success included achieving pump rates exceeding 100 barrels per minute on multiple stages and completing the first 24-hour stimulation operation for the company. Flow testing results, expected by the end of September, will provide crucial data for resource evaluation and commercial development planning.

Meanwhile, Elixir Energy has launched a three-phase strategic plan for its Taroom Trough acreage in Queensland, where it holds over 2,000 square kilometers of prospective land. The company aims to commence gas production and convert more than 150 billion cubic feet of contingent resources into proven and probable reserves by the end of 2027.

The Taroom Trough benefits from proximity to the Wallumbilla Gas Hub and established pipeline infrastructure, providing direct access to critically undersupplied East Coast energy markets and approximately 25 million tonnes per annum of LNG liquefaction capacity.

Major Operators Demonstrate Enhanced Capital Discipline

Leading oil and gas operators have implemented significant improvements in operational efficiency and cost management. Shell has streamlined its operational focus from over 70 targets to eight key metrics, contributing to structural cost reductions with targeted operational expenditure savings of $5-8 billion between 2022 and 2028.

The company’s upstream expansion plans include over one million barrels per day of additional production capacity through 2030 at an average breakeven cost of $35 per barrel, providing resilience against oil price volatility. Shell’s focus on deep-water assets that produce lower CO₂ emission barrels aligns with environmental considerations while maintaining commercial viability.

Shell’s diversified business model, incorporating substantial downstream and trading operations that operate largely independently of oil price fluctuations, provides more resilience compared to upstream-focused peers. The company has completed 14 consecutive quarters of share buybacks exceeding $3 billion, reducing its share count by 22% with potential for a 50% total reduction.

The sector’s enhanced capital discipline, demonstrated through improved project selection criteria and operational efficiency initiatives, addresses historical performance issues that previously justified valuation discounts. Leading operators have implemented rigorous return thresholds, typically requiring 10-15% internal rates of return on new projects.

The integration of traditional oil and gas operations with energy transition technologies creates optionality for operators to participate in emerging markets as they become commercially viable. Shell’s global retail network of approximately 45,000 service stations provides infrastructure for electric vehicle charging deployment, leveraging existing customer relationships while adapting to changing mobility patterns.

Despite current market challenges, the oil and gas sector presents compelling investment opportunities through a combination of enhanced operational discipline, favorable long-term supply-demand dynamics, and strategic positioning for energy transition participation. The current reduction in acquisition activity may ultimately benefit existing operators by reducing competition for assets and potentially creating value opportunities for well-positioned companies.