The Blubber

Oil prices have declined significantly this month, making it unprofitable for many companies to drill new wells in key U.S. regions.

This trend tends to slow merger and acquisition activity in the energy sector, as lower profitability makes deal-making less appealing. Similar patterns were observed during the oil price downturns in 2014 and 2020. The current environment for energy-related transactions was already weakening before the recent price drop.

As of this morning, West Texas Intermediate (WTI) crude opened at $61.03 per barrel and has hovered below $60 in recent trading sessions.

According to a survey conducted by the Dallas Federal Reserve, the break-even price for new drilling projects varies by region. In the Midland Basin—part of the larger Permian Basin—WTI must be at least $61 per barrel to be profitable. The threshold rises to $62 for the Eagle Ford and Delaware Basin, $63 for other U.S. shale plays, $66 for non-shale U.S. projects, and $70 for other areas in the Permian. In contrast, existing wells remain profitable at much lower prices, with break-even points generally around $45.

Analysts also point to market volatility and policy uncertainty as key factors limiting deal activity. According to Andrew Dittmar of Enverus Intelligence Research, this uncertainty makes it difficult for companies to agree on asset valuations. As a result, many firms are expected to focus on managing their current operations and utilizing financial hedges rather than pursuing new developments.

In 2023 and early 2024, consolidation was a major driver of activity in the oilfield sector, including significant divestments by private equity firms, many of which now have limited exposure to U.S. shale.

For deal-making to recover, two factors typically help: rising prices or a more stable outlook for future prices. While firms may be cautious if they believe prices will remain below $60 through 2026, greater confidence in long-term projections can still support decisions on asset sales. This dynamic played out in the second half of 2020, when deal activity rebounded quickly.

However, due to recent consolidation, there are fewer available assets on the market, which could limit future transaction volume unless companies begin to restructure or divest parts of their businesses.

Recent policy decisions have prioritized lowering fuel prices rather than encouraging new production in the short term.