Upstream mergers and acquisitions: PwC

M&A deal value in the US energy sector reached record levels in 2023 and 2024, with most concentrated in upstream oil and gas. Although future transactions are likely to focus on midstream and oilfield services, efforts to grow upstream via acquisition will likely continue for a couple of reasons.

First, investors show little appetite for large-scale or risky new exploration programs, and operators’ capital allocations and personnel decisions have reflected that preference. Second, the maturing of shale basins like the Permian means that organic growth via development will be difficult to maintain.¹ That reinforces the segment’s focus on wringing capital and operational efficiencies in the face of potentially flat or declining production, as Tier 1 drilling locations give way to Tiers 2-3.

With M&A taking center stage, how can upstream companies streamline integration and realize deal synergies more quickly? We see several key areas that can determine the success or failure of upstream acquisitions.

Reservoir characterization, for assessing accurate asset valuations and identifying capital or operational efficiencies.
Portfolio rationalization and unitization synergies, for aligning acquired properties to strategic objectives and capitalizing on geographic scale efficiencies post-deal.
Land, notably critical land expertise and the integration of land-related data (lease, title, production payouts), which can present perhaps the most arduous hurdle in upstream onshore M&A.

We also look at how upstream companies can, like their counterparts in other sectors, realize significant G&A synergies via acquisition.

Reservoir characterization

Reservoir characterization is the process of analyzing and integrating geological, geophysical, petrophysical, and engineering data to create detailed and reliable subsurface reservoir models. Understanding the reservoir’s structure, rock and fluid properties, porosity, permeability, pressure, and saturation are key parts of the process. The goal is to predict reservoir behavior, enhance hydrocarbon recovery, and support effective field development and management.

Reservoir characterization is critical for valuing upstream assets, and companies naturally spend considerable time and money developing these (often proprietary) models. Reservoir characterization is also critical for enhancing hydrocarbon recovery while reducing costs. Because of the vast amounts of seismic data, well logs, and drilling data involved, artificial intelligence (AI) models can be useful for detecting patterns in the data, and they can inform important reservoir management decisions such as well placement, injection rates, and so on. Post-acquisition, the best-case scenario may be achieving the same production levels with fewer rigs and fewer frac crews.

Portfolio rationalization and unitization

Following mergers and acquisitions, upstream companies tend to concentrate on portfolio rationalization—establishing core positions (both operated and non-operated) in the areas they’re active in and divesting non-core or non-strategic assets. As with reservoir characterization, in portfolio rationalization companies can leverage advanced analytics to get a picture of their current holdings, adjacent leases and owners, counterparties, and so on— in service of driving better portfolio decisions.

One variant of portfolio rationalization is unitization, where two or more operators combine their interests in a single unit across multiple tracts to increase effective resource recovery. Like reservoir characterization, managing the reservoir as a single unit helps the acquiring company reduce costs. Unitization can also greatly simplify fragmented ownership and can mitigate royalty or ownership-related risks.

The critical role of land in US onshore M&A

Land organizations—a critical data and communications nexus between operations and accounting—can provide an important, if seldom recognized, role in streamlining M&A integration. Other functions rely on the land organization as an important source of regulatory, operational, and financial obligations compliance—and deals require that each of those compliance areas be newly reviewed, understood, and acted upon.

During purchase and sale agreement (PSA) negotiations, the knowledge of land personnel is key in assessing title defects, representations and warranties, assumed obligations, and indemnifications. Before closing, land personnel conduct detailed title and lease analyses to confirm mineral ownership by depth, evaluate permitting and surface rights, and determine valuations based on reliable acreage and restrictions—critical steps to confirm that drilling can proceed. Post-deal, land teams manage system transitions, software upgrades, defect reviews, and customizations, making sure that data is quickly consolidated and accessible for functions like accounting and operations.

Asset deals vary in complexity. New basin acquisitions require significant involvement from the land team due to unfamiliarity with relevant property law and its interpretation, while bolt-on (within basin) deals are typically smoother and may even be led by land. In divestitures, land plays a key role by providing critical data to the buyer.

Data is at the heart of what makes the land function successful. Accounting and operations rely on quality data from the land department to calculate royalty payments or understand lease compliance.

With an M&A transaction, there are several data-related challenges that land should manage throughout the integration process.

Data may be stored at different levels—parcel, tract, agreement, etc. Identifying any disconnect in units between buyer and seller can help assess the level of effort required for data mapping.

Because of the variety of structured and unstructured data sources involved, and the way those data are stored, data mapping can be complex. To effectively map lease information from an acquired dataset to an existing system, the land function should understand the minimum data requirements of their land solution.

Effective asset integration requires quickly establishing ownership of newly acquired undeveloped acres to enable drilling. Gaps in the chain of title on acquired undeveloped land can create delays in unlocking the value of those assets. Title issues on developing properties can create large suspense payment balances that need to be cleared.

Differences in how companies interpret and prioritize land data like lease provisions can create risks for functions like accounting, which depends on reliable lease interpretation for royalty deductions and exemptions. If data consolidation is prioritized over compliance, royalty payments may be mishandled, leading to potential litigation from landowners.

To meet those land-related challenges head, companies should:

A structured playbook should outline key milestones, roles, governance, and standard land data requests. Templates help standardize the intake of essential lease data, enabling faster integration and supporting accurate royalty calculations. Maintaining a “transaction ready” land team and conducting post-deal lessons learned are crucial for refining processes and avoiding disorganized, reactive approaches.

Embedding land resources in business development or A&D teams allows for early detection of issues like title defects, outstanding liens, encumbrances, conflicting ownership calculations (e.g., gross versus company net acreage), or restrictive lease provisions on mineral rights, enabling proactive legal action before major investments are made.

Using market standard land systems allows companies to reduce data translation risk that might otherwise occur when seller and buyer use different systems. Lease data requires careful review and interpretation before being loaded into land management systems. Tools using AI technologies help streamline data migration by extracting, processing, and indexing unstructured lease information on provisions or clauses more precisely. Those tools can enhance searchability for key lease elements like royalty provisions.

In summary, devoting careful attention to the land-related data and potential land-related risks in a transaction can streamline integration and avoid costly, manual effort and drilling delays.

Realizing G&A synergies from upstream M&A 

Since 2014, upstream G&A and capex costs have declined based on production—due to many factors, including labor reductions, drilling and completions advances, longer laterals, increased use of multi-well pads, advanced data/analytics, and, to some extent, consolidation. Unlike periods prior to 2014, those costs remained low even when commodity prices rose, as they did post-pandemic.

In dollar terms, upstream G&A deal synergies usually pale in comparison to capital and operational improvements. Yet despite the recent declines, G&A cost can still represent a significant source for potential post-merger savings.

How can oil and gas realize the G&A savings from M&A?

The short answer is to do the things other sectors (such as financial services) have done—reduce redundant technology and professional personnel, standardize processes, and enhance fixed assets. One important step your company can take to be deal-ready and realize G&A synergies post-deal is to focus attention on talent architecture.

Many companies struggle to identify, compare, and standardize jobs across business units, geographies, and assets. These struggles are often exacerbated by a lack of data integration among finance, HR, and IT systems. The purpose of a global talent architecture framework is to, in effect, create a consistent framework for jobs in the organization and better enable talent management processes through defined responsibilities, career paths, and skills. Outcomes of that approach may include:

Standardized jobs and workforce planning, including consistency in job titles and descriptions

Standardized career framework

Organizational model design (for core businesses and other functions)

Implementation of HR systems (if necessary)

Global salary structure, including long-term incentives

Enhanced connections between Finance, HR, and IT systems

Post-acquisition, the talent architecture framework can be applied to the acquired asset or company and can streamline the important process of assessing potential redundancies.

Recap

For upstream companies looking to enhance integration synergies, we suggest they focus on three critical areas: Reservoir characterization, portfolio rationalization and unitization, and land. Although upstream companies spend a a considerable amount of time and resources addressing the first two areas, they are generally less likely to focus attention on land-related integration issues prior to the deal. But those issues are no less critical. G&A synergies should also not be overlooked. With effort put to talent architecture pre- and post-deal, the savings can be significant.