Recent megadeals like ExxonMobil’s proposed US$60 billion acquisition of Pioneer Natural Resources and Chevron’s US$53 billion move for Hess underscore the industry’s focus on delivering oil and gas as part of the energy mix. However, an accompanying drive to cut carbon emissions has generated a flurry of M&A deals over recent years. These transactions have seen several participants in the industry seek to switch the mix of fossil fuels—reducing heavy oil production and increasing gas production—or to diversify away from fossil fuels and gain prominence in renewables, critical minerals and other low-carbon solutions. Some companies, like Shell, have pursued both tactics.
Russia’s invasion of Ukraine in February 2022 paused the sector’s focus on decarbonization. Amid scarce supply, prices soared and countries emphasized energy security. The six supermajors—BP, Chevron, Eni, ExxonMobil, Shell and TotalEnergies—benefited from record profits last year, and prioritized share buybacks and dividend payments, in addition to reinvestment in their core businesses and limited dealmaking in non-core activities.
With the market upheaval of 2022 now in the rear-view mirror, investors and policymakers are once again fixing their eyes upon Big Oil’s decarbonization plans. The six supermajors, as well as a number of national oil companies, have returned to considering their net-zero ambitions, again using M&A and joint ventures to diversify away from carbon-intensive industries, with some industry-defining deals announced in 2023.
TotalEnergies bolsters its renewables profile
French supermajor TotalEnergies has been particularly active in the renewables space, having invested an estimated US$4 billion in low-carbon energies at the close of 2022. Seventeen GW of its 21 GW gross installed electricity capacity is made up of renewable energy sources.
The company has continued its push into renewables in 2023, announcing its acquisition of local renewable energy producer Total Eren in July. The transaction—whose consideration was €2.7 billion, based on an enterprise value of €3.8 billion—will see the oil giant increase its stake in the renewable power plant operator from just under 30 percent to 100 percent. Total Eren has an estimated 3.5 GW of renewable capacity in operation worldwide, including wind, solar and hydroelectric power, and a project pipeline of more than 10 GW spanning 30 countries.
TotalEnergies and Eren will also continue working together to develop green hydrogen solutions through a new partnership in an entity named TEH2, which is 80 percent owned by TotalEnergies and 20 percent owned by EREN Groupe.
The deal came just one day after the announcement of TotalEnergies’ acquisition of a 50 percent stake in Ronesans Enerji, a small-scale renewable energy producer based in Ankara that currently operates 166 MW of hydroelectric plants. Through the joint venture agreement, the two companies plan to develop renewable energy projects targeting 2 GW of renewable energy production by 2028.
The deals mark a step up in the French supermajor’s mission to become a world leader in renewables. The company is looking to achieve a global installed capacity of 35 GW by 2025 and 100 GW by 2030.
Shell and BP spend big on biogas and make foray into green hydrogen
UK supermajors Shell and BP have been seeking opportunities in renewable natural gas (RNG) as they continue their shift away from fossil fuels. The RNG, or biogas, industry focuses on the production of biomethane—a substance chemically identical to natural gas, but produced through processing agricultural, industrial and household waste.
Some big-ticket RNG deals have been announced in 2023. Shell’s acquisition of Danish biogas company Nature Energy, Europe’s largest RNG producer, closed in February with a deal value of around US$2 billion. The purchase of the Danish company, which produces around 3,000 barrels of oil equivalent a day of biomethane, will see Shell add a European production platform to its existing US operations as it looks to expand its global reach.
The deal follows rival BP’s mammoth US$4.1 billion takeover of Houston-based biogas producer Archaea Energy, announced in October 2022. The deal, which boosted the UK oil giant’s biogas supply volumes by an estimated 50 percent, is its biggest acquisition in lower-carbon fuels to date.
Following these purchases, the two UK supermajors now own a sizeable share of the global RNG market, with the three largest players—namely Archaea, Nature Energy and Clean Energy Fuels—boasting a 30 percent share of the market.
Beyond biogas, BP has shown interest in the budding green hydrogen space. Earlier this month, the company was one of several investors in the $380 million Series C funding round for US-based Electric Hydrogen, the green hydrogen industry’s first unicorn.
This follows a smaller deal in August that saw BP Ventures—the oil major’s venture finance arm that invests in new energy businesses—lead a US$12.5 million Series A financing in Advanced Ionics, a Milwaukee-based company that manufactures water vapor electrolyzers for green hydrogen production.
Shell, too, is building its position in the electrolyzer space, participating in a US$73 million funding round in August for Verdagy, alongside Singaporean sovereign wealth fund Temasek. California-based Verdagy is focused on scaling up electrolyzer technologies for industrial markets and the production of green hydrogen to facilitate the decarbonization of energy-intensive processes such as steel and ammonia production.
US supermajors target hydrogen, carbon capture, EVs and lithium
Across the Atlantic, Chevron and ExxonMobil are taking a different route. While their European peers are charting a clear path toward renewables, these two US supermajors are focusing on other low-carbon ventures such as hydrogen and carbon capture. Estimates show that renewables and other low-carbon energy solutions make up around 30 percent of European oil and gas majors’ total capital expenditure, a figure that drops to less than 10 percent in the US.
Shareholder sentiment is one reason the US oil and gas industry lags behind Europe in this arena, with Chevron and Exxon shareholders rejecting climate change proposals at the US oil majors’ recent annual meetings.
However, both companies are making inroads into low-carbon solutions and technologies. In September, Chevron acquired a 78 percent stake in the Advanced Clean Energy Storage hydrogen project, ACES Delta, through an acquisition of its majority interest holder, Magnum Development.
Following the deal, Chevron will join Mitsubishi Power, an industry leader in power generation and energy storage solutions, to jointly develop the ACES green hydrogen project located in Delta, Utah. With the capacity to produce up to 100 metric tons of hydrogen per day, ACES is said to be one of the largest green hydrogen projects in the world. The deal highlights Chevron’s commitments to hydrogen, with the oil giant pledging to invest US$2.5 billion in the industry by 2028.
Chevron has also moved to invest in the electric vehicles space. In early October, Chevron Technology Ventures announced it was investing in Electric Era Technologies. The Seattle-based company is best known for its PowerNode EV high-speed charging stations and will use the new capital to hasten its deployment of charging stations among convenience store and gas station partners in the US.
Exxon, meanwhile, announced a proposed acquisition of US-based carbon capture, usage and storage (CCUS) company Denbury Resources in July, as the supermajor looks to grow its low-carbon business unit. The all-stock deal, valued at US$4.9 billion, will give Exxon access to the largest CO₂ pipeline network in the US, spanning 1,300 miles.
Exxon views CCUS projects, which capture CO₂ emissions and store them underground, as key to realizing its net-zero goals. According to consultancy Rystad Energy, total spending on CCUS projects is set to reach US$7.4 billion in 2023 alone, while the Biden administration’s generous tax credits for CCUS projects are further incentivizing investment in the industry.
Exxon’s more radical move has been a push into lithium. In May 2023, it purchased drilling rights in respect of 120,000 acres in Arkansas from Galvanic Energy for a reported US$100 million. The region is known to have brine rich in lithium. In June, Exxon expanded its lithium bet by agreeing to develop more than 6,100 acres, also in Arkansas, with Tetra Technologies. Exxon will need to select at least one direct lithium extraction technology to filter the lithium from the brine and is reportedly in discussions with providers about licensing this technology.
Toward net zero: Striking the balance
With the oil and gas supermajors setting ambitious emissions reduction targets, the pressure is now on to deliver. The industry will likely be scrutinized at COP 28, which begins in November, as the sector accounts for almost 15 percent of energy-related greenhouse gas emissions, according to the International Energy Agency.
Unlike past conferences, where the industry was not included in discussions, this year’s host country, the UAE, has stressed the importance of oil and gas companies having their voices heard. The solution is far from simple, of course, with last year’s energy crisis underscoring the world’s continued reliance on fossil fuels.
A balance must be struck, though. M&A will play a vital role in enabling global oil and gas leaders to re-shape their portfolios, incorporating both renewables and low-carbon energy solutions to help make their net-zero ambitions a reality.