Thought Leadership

U.S. Upstream Review and Outlook

Client Updates

The upstream oil and gas industry weathered numerous challenges throughout the first half of 2020, but with increased activity in the second half and an apparent stabilization in oil prices, industry participants are feeling cautiously optimistic heading into 2021.

Hopes for a stronger 2020 were dashed relatively early in the year as COVID-19 spread across the world, shuttering economies, hampering demand and depressing prices. On the heels of the initial impact of the virus, a price war broke out between OPEC+ ringleaders Russia and Saudi Arabia, resulting in the price of West Texas Intermediate briefly falling as low as negative $37.63 per barrel in April. Prices promptly rebounded into positive territory but remained depressed for a significant portion of 2020.

On the regulatory and litigation front, headwinds continued in the form of court decisions related to pipelines. Notably, Dominion Energy and Duke Energy announced the abandonment of their $8 billion Atlantic Coast Pipeline due to protracted legal conflicts. The Biden Administration has signaled support for strengthened regulation of both new and existing projects, which will present new challenges for the industry in 2021.  

Similar to 2019, M&A in the upstream sector was dominated by a handful of multi-billion-dollar transactions involving the consolidation of public companies, continuing the winnowing of U.S.-based independent E&P companies. Access to capital markets remained a challenge for most industry players, with most transactions being driven by capital structure management, rather than a need for growth capital. 


2020 was a tale of two halves for M&A in the U.S. oil and gas industry. M&A activity ground to a halt in the first half of the year due to the COVID-19 related shutdowns and price destruction resulting from the OPEC+ collapse. However, the second half of the year was characterized by a handful of multi-billion dollar mergers, making the fourth quarter of 2020 (with total deal value of $27 billion) the third most active quarter by value since 2014.1 However, only 140 deals were announced for the year, which was the lowest annual total since 2006 and roughly a third of the average deal flow over the last ten years.2

The majority of 2020’s marquee deals involved further acreage consolidations in the Permian Basin. These large deals were generally characterized by all-stock consideration, moderate premiums and competitive geographic and structural synergies.

Chevron Corporation got the ball rolling in July when it announced it would acquire Noble Energy, Inc. for $13 billion, including assumed debt. In September, Devon Energy Corporation announced a $5.8 billion merger with WPX Energy, Inc. The largest deal of 2020 was ConocoPhillips’ $13.3 billion acquisition of Concho Resources Inc., which was also the largest pure shale acquisition since 2011. Shortly after, Pioneer Natural Resources Company announced it would acquire Parsley Energy, Inc. for $7.6 billion. The trend of consolidation activity—as upstream companies search for scale to protect against prolonged lower commodity prices and continued demand uncertainty—is expected to continue.

Announcement Date

Completion Date



Value1 ($MM)

July 20, 2020

October 5, 2020

Chevron Corporation

Noble Energy, Inc.


September 28, 2020

January 7, 2021

Devon Energy Corporation

WPX Energy, Inc


October 19, 2020

1Q 2021 (Expected)


Concho Resources Inc.


October 20, 2020

January 12, 2021

Pioneer Natural Resources Company

Parsley Energy, Inc.


1Includes assumed debt.





Notably, Baker Botts guided the upstream portion of BP PLC’s $5.6 billion sale of its Alaska business to an affiliate of private equity-backed Hilcorp Energy.

Capital Markets


The public equity capital markets remained effectively closed for new issuances by fossil fuels-related businesses and are likely to remain closed in 2021 barring a sustained rise in commodity prices. Many large diversified private equity firms are shifting their allocations away from E&P investment and are pausing new energy fund raises, and public institutional investors are being pressured to divest from hydrocarbon-related investments. In July, Warburg Pincus informed investors that it would not make any deals linked to fossil fuels from its next flagship fund. In December, New York State’s $226 billion pension fund announced it would eliminate many of its fossil-fuel stocks in the next five years and would “decarbonize” by 2040.

While economic and political uncertainties and increasing ESG concerns are expected to continue to drive market challenges in 2021, opportunities will exist for companies that demonstrate the most sustainable strategies for profitable growth. The drive away from growth-oriented models will continue to enhance investment in service technologies to drive further cost savings. Although not yet formally required, the SEC continues to face pressure from investors to enact mandatory climate related disclosures. SEC acting Commissioner Lee recently proclaimed her support for mandatory climate (and diversity) related disclosures and the new administration is expected to be more sympathetic to such proposals.


The high-yield debt markets continue to be challenging for most non-investment grade operators, especially in the new issue market. The average yield on the Bloomberg Barclays High Yield Energy Index spiked to 24% in March 2020 but dropped to 6.2% to close the year.3 Larger and better capitalized operators have been able to access capital, but these deals are largely used to refinance upcoming maturities. There is a recent uptick in demand for some upstream issuers, however time will tell whether this trend can be sustained.

In the bank markets, lenders continued to tighten the terms of reserve-based lending facilities and reduced the borrowing base of some companies by double-digit percentages in what amounted to be a contentious year for redeterminations. Several prominent U.S. banks continue to shy away from fossil fuel projects and have publicly announced their opposition towards financing new projects as pressure from activists and institutional investors increased.

2021 Look Ahead

After overcoming the most challenging year in recent memory, the outlook for the upstream industry is cautiously optimistic but is ultimately dependent on the trajectory of the COVID-19 pandemic. Despite the number of world-wide governmental restrictions currently in effect, economic activity is projected to rise as the amount of vaccinations administered exponentially increases.

It is likely that trend of consolidation will continue to drive M&A activity as smaller companies seek scale in order to remain competitive versus larger (and better capitalized) companies with low-cost operating models. The outlook for public equity and debt capital markets activity is a bit less optimistic unless the rise in commodity prices can be sustained. The industry is also embracing new technologies to monitor data and reduce emissions which could create new opportunities for investment and cross-sector deal activity.

In the mineral and royalty sector, 2021 promises to be another strong year. The significant capital invested by private equity sponsors, combined with challenging capital markets opportunities and lack of scale for many private companies, likely means continued consolidation and acquisition opportunities by well capitalized companies.

On the regulatory and political front, the Biden Administration and the Democrat led Congress have signaled support for strengthened regulation throughout the industry as the focus on climate change continues to gain momentum. The U.S.’s production levels are unlikely to reach the 2020 highs of over 13 million BOPD under the Biden Administration, however this reduction coupled with OPEC+’s pledged restraint, will benefit prices going forward in 2021. Additionally, the Biden Administration’s proposed stimulus package should jump-start the economy and provide favorable conditions for the industry if enacted.

Baker Botts is an international law firm whose lawyers practice throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit

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