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U.S. Upstream Review and Outlook

Client Updates

Deal activity increased in 2021 as vaccine availability and loosened economic restrictions drove price rebounds, leaving industry professionals relatively optimistic heading into 2022.

Oil prices benefitted from the 2021 rebound, with WTI Crude hitting over $60 per barrel by March of 2021 and a peak of $85.15 per barrel in November, ending the year at $75.21. Natural gas prices increased throughout the year as well, with Henry Hub spot prices increasing from $2.70 per million btu to over $5 per million btu.

Upstream oil and gas companies continued to emphasize return of capital and free cash flow generation in response to investor demands for fiscal discipline, limiting traditional capital sources.  Energy capital investment remains focused on investments in the energy transition.

The Biden administration has signaled support for strengthened regulation, but these ambitions have been significantly dampened as a result of political headwinds and a closely divided Senate. Nevertheless, the Biden administration rejoined the Paris Climate Agreement, and proposed regulations for methane emissions from new and existing oil and gas sources.


M&A in the upstream sector in 2021 was characterized by multi-billion-dollar, low-premium consolidations of gas-focused public companies. Many legacy oil and gas companies remain focused on opportunities to lower carbon output through divestment and/or acquisition of lower-emissions assets, and emerging reporting and disclosure standards for ESG continue to be a focus.  The largest upstream deal of the year, Coterra Energy Inc.’s (represented by Baker Botts) acquisition of Cimarex Energy Co., involved a complementary combination of oil and gas assets across basins, and is expected to provide greater stability of free cash flow and return of capital to shareholders. Following closing, Coterra became only the second oil and gas company to announce a variable dividend on top of its regular quarterly dividend, after Pioneer Natural Resources Company did so earlier in 2021.

Divestments also continued in 2021, with the largest deal, Royal Dutch Shell PLC’s sale of its Permian basin assets to Conoco Phillips (represented by Baker Botts), representing nearly double the value of British Petroleum’s sale of its Alaska upstream assets in 2020. The transaction also marked a noteworthy withdrawal of Shell from the Permian basin and Texas overall, as the company focuses its energy on investment in greener assets. Shell announced that it intended to return most of the proceeds from the sale to shareholders in the form of approximately $7 billion in share buybacks.

2021 Top 3 M&A Transactions (total value)

Announcement Date

Completion Date



Total Value ($MM)

March 24, 2021

October 1, 2021

Coterra Energy Inc. (formerly known as Cabot Oil & Gas Corporation)*

Cimarex Energy Co.


September 20, 2021

December 1, 2021


Royal Dutch Shell PLC


April 1, 2021

May 4, 2021

Pioneer Natural Resources Co.

DoublePoint Energy


*Represented by Baker Botts





The market clearly intends to sharpen its focus on ESG-related issues.  ExxonMobil, the largest oil and gas company in the world, lost a historic shareholder proxy fight to an ESG-focused activist fund who successfully sat two directors at the 2021 annual meeting.

Capital Markets


The traditional public equity capital markets remained challenging for new issuances and are unlikely to be significant sources of funding in 2022 despite the sustained rise in commodity prices, as investors focus more on ESG and return of capital. Blackstone-backed Vine Energy Inc. went public in March 2021, but was subsequently acquired by Chesapeake Energy Corporation in a mixed stock-and-cash transaction only a few months later. 

There remain pockets of potential investments in renewable-based fuel projects that could provide an avenue for some energy capital investment in 2022, including in collaboration with traditional energy companies.


The high-yield debt markets continue to present difficulties for more speculative energy credits, especially in the new issue market. Depressed interest rates as a result of the Federal Reserve’s policy in 2021 has led to low-yield overall in the debt market, making high-yield in the upstream particularly unattractive to investors given the recent default profiles. Most high-yield transactions are being used to refinance existing debt or term out potentially shrinking reserve-based borrowing-base capacities. Rising interest rates and increased demand for oil and gas in 2022 may drive some additional appetite for energy-related debt. Fitch issued a neutral sector rating for North American Oil and Gas in December 2021, reflecting the expectation of continued capital discipline, moderate growth and focus on free cash flow.1

2022 Look Ahead

The 2022 outlook for the upstream industry is cautiously optimistic given projected demand increases, despite the continued uncertainty surrounding new variants of COVID, vaccine efficacy for such variants and future governmental restrictions. Natural gas and LNG exports are also expected to benefit, particularly for U.S. operators given the tensions in Europe over Russia’s actions in Ukraine, although it remains to be seen how the LNG export market will be impacted.

The trend of consolidation will likely continue to drive M&A activity and capital markets access will be driven by robust free cash flow models. The outlook for public debt activity is more optimistic, given the effects the anticipated interest rates hikes are expected to have on equity prices, along with the potential for higher oil prices. If prices remain high enough for long enough, investor appetite for leverage from upstream players could return, but the industry is also embracing new technologies which will create opportunities for ESG investment and cross-sector deal activity.


Visit 2021 – Traditional Energy Rebounds and Increased Energy Transition, for the complete list of individual, detailed articles associated with this publication.

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