Oil and Gas Trends

Upstream Industry Highlights

Geopolitical Risks and US Supply Growth: The upstream sector in 2025 is shaped by a balancing act between geopolitical risks, OPEC+ supply management, and US production growth. While global oil demand is expected to peak at 109 million barrels per day by 2035, regions like North America and the Middle East are projected to maintain a supply surplus, contrasting with deficits in Asia and Europe. This dynamic underscores the importance of regional strategies to address supply-demand imbalances.

Technological Advancements Driving Efficiency: The industry is rapidly adopting technologies like artificial intelligence (AI), robotics, and IoT to enhance operational efficiency. AI is being used for predictive analytics, reservoir management, and supply chain optimization, while IoT devices enable real-time monitoring of equipment. These innovations are helping companies reduce costs, improve safety, and transition toward sustainability goals.

Permian Basin Repositioning: The Permian Basin remains central to US production growth but faces challenges like infrastructure constraints and natural gas takeaway issues. Companies are exploring tier 2 and tier 3 acreage while adopting advanced techniques like refracturing and enhanced oil recovery to maintain productivity. Recent pipeline projects aim to alleviate bottlenecks, supporting stable production.

Moderate Production Growth Amid Price Volatility: US crude oil production is forecasted to grow by 120,000 barrels per day in 2025, driven largely by the Permian Basin's contribution of 230,000 barrels per day. However, WTI prices hovering in the high $60s to low $70s may limit significant increases in drilling activity, prompting companies to focus on operational efficiency rather than aggressive expansion.

What’s Next for Oil & Gas M&A?  

After two years of record-breaking mergers and acquisitions (M&A) activity, the upstream oil and gas sector is entering 2025 with a noticeable slowdown. While 2023 and 2024 saw historic deal volumes—driven by high commodity prices, consolidation in key basins, and a push for operational efficiency—this year is shaping up to be more measured. So, what’s behind this shift, and where does the industry go from here?

A Cooling Market, But Opportunities Remain

According to Wood Mackenzie, global upstream M&A activity is expected to decelerate in 2025. The reasons are multifaceted:

• Commodity Price Volatility: Brent crude oil prices are forecasted to average $73 per barrel this year, down from 2024 levels. This has made buyers more cautious about valuations.

• Economic Uncertainty: Concerns over potential recessions in key markets have tempered enthusiasm for large-scale deals.

• Strategic Shifts: Many companies are focusing on optimizing existing portfolios rather than pursuing aggressive acquisitions.

Despite this slowdown, the global deal pipeline remains robust, with approximately $150 billion worth of opportunities still on the table. North America continues to dominate the market, accounting for nearly $80 billion of potential deals, while the Middle East is emerging as a new hub for strategic investments, particularly in LNG projects.

North America: The Epicenter of Activity

The Permian Basin remains a focal point for M&A activity in North America. Recent years have seen a wave of consolidation among independent operators seeking scale and efficiency. However, with many of the largest players already consolidated, future deals may focus on smaller-scale transactions or innovative partnerships aimed at unlocking value from existing assets.

The Middle East: A Rising Star

While North America leads in deal volume, the Middle East is gaining traction as a hotspot for M&A activity. National oil companies (NOCs) are increasingly looking to diversify their portfolios and invest in LNG projects to meet growing global demand. This region's strategic importance cannot be overstated as it positions itself as a key player in both traditional oil markets and the energy transition.

What’s Next?

The slowdown doesn’t mean the end of opportunities—it signals a shift in priorities. Companies are likely to focus on:

• High-Quality Assets: Deals will increasingly center on assets with strong cash flow potential and low breakeven costs.

• Energy Transition Synergies: Expect more acquisitions that align with decarbonization goals, such as investments in carbon capture technologies or renewable natural gas projects.

• Operational Efficiency: Companies will prioritize deals that offer synergies through cost savings or technological advancements.

Final Thoughts

While 2025 may not match the record-breaking M&A activity of recent years, it remains an exciting time for the upstream oil and gas sector. With $150 billion worth of opportunities still available globally, savvy players will find ways to navigate market challenges and position themselves for long-term success.