Oil and gas companies plunged over US$156 billion into corporate takeovers and land deals during the second U.S. shale boom, in a massive bet that good times would continue and crude prices would rise. Many of those deals have become financial albatrosses.
Still, the promise of future returns lured investors, including a wave of acquisitions that happened after the first boom when prices pulled back sharply from 2014 to 2016. Oil companies such as BP Plc , Occidental Petroleum Corp and Exxon Mobil Corp made highly publicized purchases that have lost substantial value. BP, Royal Dutch Shell and others have cut the assumed value of those assets, conceding big wagers on shale will not pay off.
There are few exit strategies for companies holding unwanted assets and acreage. Some, like Occidental, are seeking to sell assets to pay down debt even though buyers are scarce. Others will likely be forced to unload stakes at a loss. “People were too focused on growth as opposed to really drilling things that make sense," said Brock Hudson, managing director at investment bank and advisory firm Carl Marks Advisors."It's hard not to appear that you overpaid when we end up in a situation like we are right now.”
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