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What motivates merger and acquisition activities in the upstream oil & gas sectors in the U.S.?

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  • Hsu, Kuang-Chung
  • Wright, Michael
  • Zhu, Zhen

Abstract

The U.S. oil and gas (O&G) industry has experienced a tremendous amount of growth in the last decade or so due to the development of horizontal drilling and fracking technology. In the meantime, the industry has experienced heavy merger and acquisition (M&A) activity, especially in the upstream sectors. While these M&A activities may be related to the aggregate M&A waves in the country, they are unique in their own respect. We recognize that the M&A activities in the energy industry in general, and the O&G sectors in particular, can be different from the traditional sense of M&A activities. In this paper, we provide some stylized facts on the M&A patterns in the upstream O&G sectors, focusing on the factors that influenced these patterns. Our empirical evidence suggests that among the variables we studied, oil price and O&G production are the most important factors that influence M&A activities, while other variables do not show consistent effect across regions and definitions of M&A. In addition, the M&A activities had momentum-building periods and had patterns consistent with a wave hypothesis. Our findings support the notion that industry-specific factors are more important than general economic conditions in determining M&A in the O&G industry. We find evidence supporting both the behavioral and neoclassical theories on M&A.

Suggested Citation

  • Hsu, Kuang-Chung & Wright, Michael & Zhu, Zhen, 2017. "What motivates merger and acquisition activities in the upstream oil & gas sectors in the U.S.?," Energy Economics, Elsevier, vol. 65(C), pages 240-250.
  • Handle: RePEc:eee:eneeco:v:65:y:2017:i:c:p:240-250
    DOI: 10.1016/j.eneco.2017.04.028
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    References listed on IDEAS

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    1. repec:eee:eneeco:v:71:y:2018:i:c:p:62-69 is not listed on IDEAS
    2. Bos, Martijn & Demirer, Riza & Gupta, Rangan & Tiwari, Aviral Kumar, 2018. "Oil returns and volatility: The role of mergers and acquisitions," Energy Economics, Elsevier, vol. 71(C), pages 62-69.
    3. repec:eee:eneeco:v:70:y:2018:i:c:p:190-204 is not listed on IDEAS

    More about this item

    Keywords

    M&A; Investment; Energy; Oil & gas;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General

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