Kimmeridge: Rising shale costs drive push for more M&A

(Bloomberg) — More consolidation in the U.S. shale sector is needed to cope with soaring costs to identify and exploit untapped oil reserves, according to Kimmeridge Energy Management Co.

So-called finding and development costs surged 70% to $17 a barrel last year after doubling in 2022, Kimmeridge wrote in a white paper on Monday. Finding and development costs are among the first expenses incurred by management teams and typically involve things such as seismic surveys and drilling test wells to confirm a discovery.

More than a decade into the shale revolution, which upended global energy markets, F&D costs are climbing in large part because the richest discoveries already have been drilled. That’s forcing companies to explore second- and third-rate prospects to ensure future crude production.

“The industry is worried because shale is getting old,” according to the report. “The current wave of consolidation is motivated by real concerns about declining capital efficiency.”

Oilfield-service costs for U.S. shale producers are expected to rebound in 2025 as demand for natural gas drilling returns, research house Enverus has said. Kimmeridge previously pushed for improved environmental stewardship and more corporate takeovers among shale companies and called for restraint on executive pay. The firm’s current shale investments include Civitas Resources Inc. and Expand Energy Corp.