New Delhi [India], July 28 : Oil and gas companies are increasingly turning to mergers and acquisitions (M&A) as a strategic tool to improve operational efficiency, enhance profitability and create long-term value amid volatile market conditions, according to a report by global consulting firm McKinsey & Company.
"O&G is entering a period of elevated M&A activity--and particularly of mergers and combinations--as companies respond to price volatility, seek greater scale, and look for new ways to create value," the report said.
The report said the industry is witnessing a fresh wave of dealmaking, with companies pursuing mergers of equals and business combinations to build larger, more efficient operating platforms rather than focusing solely on traditional cost synergies.
"The companies that can benefit most from this wave of dealmaking treat it as more than a chance to capture synergies. The real opportunity is to envision how a combined company can operate more effectively than either company could on its own," it said.
According to McKinsey, recent transactions show that companies are using M&A not only to consolidate their positions in resource-rich basins and secure infrastructure, but also to redesign operating models and improve capital efficiency.
The report noted that many companies are adopting a "transact to transform" approach, under which deals are treated as opportunities to fundamentally improve operational performance. It said this requires companies to pursue full-potential integrations by improving the performance of wells, facilities, people, technology, contracts and capital allocation while carefully sequencing integration initiatives.
"This approach treats deals as unique change windows. It encourages leaders to execute full-potential integrations, where they strive to achieve top-quartile performance for the combined enterprises," the report said.
McKinsey's analysis of 20 oil and gas deals over roughly the past decade involving more than 100 assets found that companies adopting a full-potential approach achieved significantly higher synergies than those following conventional integration models.
The report said raising merged entities to top-quartile performance enabled around 33 per cent higher production efficiency compared with 20 per cent under traditional approaches, while operating expenditure efficiency improved by 40 per cent versus 20 per cent. Overall, the approach delivered roughly 55 per cent higher synergy achievements across value levers than conventional synergy programmes.
The report highlighted several recent global transactions, including ExxonMobil's acquisition of Pioneer Natural Resources, Devon-Coterra, and regional combinations involving Eni, Shell, Equinor and PETRONAS, as examples of companies using M&A to improve operational scale, optimise production and strengthen regional business platforms.
It also stressed that disciplined execution after a deal is critical to unlocking value, particularly in an asset-intensive industry where physical infrastructure, technical resources and operational capabilities are closely interconnected.
"The real opportunity is to envision how a combined company can operate more effectively than either company could on its own," the report said.
According to McKinsey, companies that combine ambitious value creation plans with carefully sequenced integration strategies will be best placed to capture efficiencies and generate sustainable profitability as consolidation accelerates across the global oil and gas sector.