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“Merger Mania” Highlights the Huge ROI Potential — and Major Supply Chain Challenges — of Oil & Gas Consolidation

August 24, 2023
Austin, TX

By Adam Hirschfeld, VP of Sales

A Rising Tide of M&A Activity

In recent weeks, we have seen headlines heralding the surge in M&A activity in the U.S. shale sector. Two major Texas producers, Permian Basin's Permian Resources and Eagle Ford's Silver Bow Resources, led the charge with their high-profile acquisitions. But beyond the flashy numbers lies a complex web of operational challenges — the devil, as they say, is in the details.

Take the declining rig counts, for instance. Both Enverus and Baker Hughes have reported consistent reductions, with an undeniable 20% drop in just eight months. Coupled with this is the shift from the shale drilling boom to a more deliberate development mode in the Permian. It's no longer about expanding wildly but about maximizing economies of scale to control costs, particularly as production levels plateau.

On the surface, M&A is a logical solution. Acquisitions like Silver Bow's purchase of the remaining Eagle Ford from Chesapeake Energy and Permian Resources' all-stock deal with Earthstone Energy aim to increase equity production while optimizing economies of scale. Yet, as Will Hickey, Co-CEO of Permian Resources, insightfully pointed out, these transactions rely heavily on "synergies" — the economies of scale, operational efficiencies, and risk reduction.

While the large figures might grab the headlines, the path to realizing these "synergies" on a company's P&L is littered with operational and supply chain challenges. Here are three to put on your radar: 

Contracts and Risk

The moment a deal is finalized, the acquirer inherits a legacy of vendor relationships, each governed by its own set of contracts and compliance standards. This potentially lengthy transition, which can span from 6 to 18 months, entails aligning vendors to the acquirer's standards. The result is a delay in realizing synergies; this is money a company will never get back. 

During M&A, it’s standard process for drilling to continue business-as-usual while the two companies integrate. But during that time, the purchaser is accepting increased risk and added cost. Vendors are working on outdated MSAs, adjusting to different compliance standards, and navigating multiple payment processes.And all the while, new vendors have to be sourced to fill gaps across the supply chain, which only adds to the complexity.  The faster companies can move to bring the hundreds of vendors servicing the acquired company’s operations up to their contractual, compliance, and safety standards, the sooner they will achieve returns. Otherwise, they leave money on the table.

Systems Integration

Today’s Oil & Gas companies operate an array of specific solutions — from procurement and invoicing to compliance, project management, and more. Merging these systems can unlock tremendous value, but the process is often slow, manual, and fraught with pitfalls. Here is one downstream example: During a tech migration, it’s not uncommon for companies to have issues with invoice processing as vendors move from one system to another. We know of companies who have engineers fixing vendor invoice problems rather than accounts payable personnel because the integrations aren’t properly staffed. This is not where you want your top scientists spending their time. On the other end, companies will hire consultancies at a cost of millions to run their systems transitions. These are costs that often seem inconsequential when making the deal, but add up in both time and money post-acquisition.

Consolidation and Process Improvement

True synergies aren't realized by merely addressing the first two challenges. They necessitate an overarching revamp, including right-sizing internal teams and honing processes. There is often the push to reduce duplicate systems, but most Oil & Gas companies leverage a wide array of tools that are time-consuming to manage and don’t improve visibility across your entire company. (And do you really want another platform to log into?). Instead, the real objective is to rethink how you operate and meaningfully consolidate your systems to reduce friction and complexity, improve data quality and access, and improve the efficiency of the operations and supply chain teams who make your company tick.

In M&A, where ROI is paramount, time is an underrated but vital variable. Every day that passes without fully integrating an acquisition diminishes the value of the projected returns. Thus, speed isn't merely a competitive advantage; it's essential for M&A success. The complexities of contracts, systems, and processes present a make-or-break challenge, one that requires strategy and foresight as part of the deal-making process. 

For those who are capitalized to play in this space, M&A represents a huge opportunity. But the true challenge isn't getting the deal to close. It's navigating the operational and supply chain challenges that lie in wait post-acquisition. As the year progresses, this M&A wave will undoubtedly continue to shape the U.S. shale sector. However, success won't just be determined by the biggest deals but by those who can adeptly steer their ship through the post-acquisition storm, turning challenges into opportunities.


Adam Hirschfeld is an industry veteran who worked in field operations and project management before shifting to leadership roles focused on business development in the labor project management space. As VP of Sales, he stewards the voice of the client to drive innovation across the Workrise suite of products. Adam lives in Colorado, where he enjoys skiing and hiking with his family.

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