Energy M&A: A promising outlook for 2025

Overseas, European Union member states’ continuing sanctions against Russian natural gas have increased the demand for U.S. exports. And across the world, the dramatic rise of energy-intensive data centers to support a growing hunger for artificial intelligence-related capabilities has fueled a rise in consumption that’s outpacing the rise in renewable energy generation capacity.

In this environment, we expect the following trends to make a big impact on M&A in the energy industry in the year ahead:

• Shale basins to be a focus for consolidation: For example, following its May 2024 $59.5 billion acquisition of Pioneer Energy, ExxonMobil is focusing heavily on production in the Permian Basin. At that time, ExxonMobil projected that by 2027, its Permian production volume would approximately triple its 2023 production volume. With crude prices stable and natural gas demand high, upstream energy companies are experiencing strong cash flows that support healthy dealmaking, although acquisitions will be common at a much smaller scale than the ExxonMobil megadeal.
• Oilfield/energy services M&A opportunities to arise: The strength in exploration and production leads to a need for energy services related to oil and gas. Consolidation in energy services has been accelerated because major providers have seen M&A as a way to achieve greater economies of scale and strengthen their profits in a subsector where margins have been tight for many years.
• Midstream assets, particularly those supporting LNG exports, to attract investor interest: U.S.-based LNG producers are well-positioned to help fill the void that could be created by Europe’s sanctions of Russian imports. Increased demand in Asia also could bode well for the LNG infrastructure in the United States.

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While the new administration is expected to be friendly to traditional energy, its stance on renewables is unclear. The Trump Administration quickly withdrew from the Paris Agreement and moved to eliminate electric vehicle mandates. However, the influence of Tesla CEO Elon Musk in the administration leaves its position on renewables uncertain.

Even before the November election, M&A interest in the renewables subsector had been lukewarm. Electric vehicle (EV) demand in the United States has fallen short of early forecasts, and some automakers have scaled back their plans for EV production.

Nonetheless, the IRA continues to incentivize investment in renewables in the United States, and demand for EVs elsewhere in the world — particularly in China — remains strong. As most regulations are finalized under the IRA, and the technology-specific credits have transitioned to being technology neutral, we do not believe the new administration will ultimately take action to repeal the full suite of credit benefits. However, there could be impacts to individual credits. First, the Jan. 20 executive order freezing all regulatory rulemaking, including consideration for a 60-day delay in the effective date of any rules recently published in the Federal Register, could affect the recently released finalized Sections 45Y and 48E technology-neutral energy credit rules if they are targeted for a 60-day delay and review.

Additionally, while the “Unleashing American Energy” order doesn’t directly affect the availability or eligibility of energy tax credits, it calls for the termination of emissions waivers that favor EVs, removing “unfair” EV subsidies, and pausing the disbursement of IRA funds related to EVs and climate change, which could affect the economic viability of projects that rely on grant programs. Furthermore, the Trump Administration issued an executive order withdrawing all offshore areas for wind energy leasing and ordered a temporary moratorium on approvals for on- and offshore wind projects, which remains in place until a review of permitting practices and environmental impact of such projects can be complete.

Despite the executive orders, to undo the energy credits Republicans would need to pursue legislation, a process complicated by narrow majorities, which may also be undermined by Republican supporters in districts where significant investment has resulted from energy credit-related projects. To bring any action to hinder this bustling energy economy would seem counter to the administration’s messaging on the economy and energy independence. Any changes to the credits would likely take effect for projects beginning construction after some future prospective date, and grandfathering projects that haven’t begun construction under binding written agreements should be considered.  

The continuing availability of IRA credits can make renewables an attractive option for M&A even though demand hasn’t accelerated as rapidly as expected. Because this subsector is strongly influenced by technology innovation in areas such as battery capacity and production, acquisitions of innovative startups will remain a driver of M&A in renewables for the foreseeable future.

There’s also talk in the energy community of reinvigorating another carbon-free energy source by recommissioning large abandoned nuclear reactors and developing small, modular nuclear reactors that could be installed to supply 100% of the needs of energy-hungry facilities such as large data centers.

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As dealmakers consider the potential of M&A in the energy industry, these additional factors are worth considering:

Private equity (PE) has potential to be active in energy: Two factors are fueling optimism that (PE) activity will be strong in energy M&A in 2025.

Many of the prevailing factors in the energy industry point to a robust year for M&A in 2025.

With consumption increasing, leaders in the industry are likely to pursue greater scale and efficiency to meet energy needs and increase profits simultaneously. This pursuit is likely to lead them to M&A deals with the potential to drive significant success for their businesses.

Those who get full value out of the upcoming deals will be winners in the industry, but this will require:

• Clear strategic vision
• Careful forecasting
• Disciplined due diligence
• Detailed planning
• Persistent integration

Strong leadership and thorough due diligence can help energy companies achieve all these objectives in a promising M&A environment.

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