Upstream, Midstream and Downstream M&A Activity Shifts Towards Gas-Weighted Deals Amid Growing Natural Gas Demand

Oil demand decreases in market uncertainty; natural gas demand increases as a result of AI-driven data centres and LNG exports

Amid concerns of global tariffs, limited inventory, and other market uncertainties, crude oil prices have dropped in the first half of 2025. At the end of May 2025, oil traded at about USD60 per barrel, a significant decrease from its USD75-78 price in January. In addition, US drilling rig numbers across US basins have been decreasing this year, down from 614 on April 30th to 586 as of 31 May, with the sharpest decrease occurring in the Permian Basin (decreasing by 22 rigs in May, and 37 rigs in the past year). 

The dampened crude oil activity follows a number of high-profile upstream M&A transactions in recent years, primarily relating to Permian assets. In 2023, Exxon Mobil Corporation’s acquisition of Pioneer Natural Resources and Occidental’s acquisition of CrownRock L.P. demonstrated a strong oil focus among large energy companies, with an emphasis on corporate consolidation rather than asset acquisitions. This trend continued in 2024 with Diamondback Energy’s merger with Endeavor Energy Resources, which was quickly followed by ConocoPhillips’s acquisition of Marathon Oil.

However, as noted by Enervus, while the first half of 2025 appeared to continue the streak of strong M&A activity in the Permian, only one company, Diamondback, accounted for almost 50% of total value with its transactions with Viper Energy Partners and Double Eagle IV. Other upstream companies have not fared quite as well. “Outside of Diamondback, buyers were already feeling the pressure of limited acquisition opportunities and high asking prices for undeveloped drilling inventory. On top of that, upstream companies will now have to navigate significant headwinds from falling oil and equity values.”

The downward trend in oil-based activity shows few signs of slowing down in the coming year. Recent data from the US Energy Information Administration (EIA) forecasts slowing growth in global oil consumption, driven by a slowdown in economic growth in Asia, as well as the tariffs and ensuing trade wars. In addition, OPEC recently revised its 2025 oil demand growth forecast, now anticipating a demand increase of 1.3 million barrels per day (bpd), a decrease of 150,000 bpd from its previous projection. OPEC’s 2026 demand increase projection has also been decreased.

Amidst the global uncertainty affecting oil viability, energy companies are shifting their focus to natural gas. According to Hart Energy, “[b]etween 60% to 70% of the deals [Stephens, Inc.] is seeing today are gas-weighted... Just a few years ago, as much as 80% of buyer interest was on oil-weighted assets.”

The growing gas demand is driven in part by the need to power AI-driven data centres. Recent data from East Daley Analytics (EDA) forecasted about 7.8 Bcf/d of additional gas demand by 2030 to produce electricity to power data centres. EDA currently predicts a rapidly increasing number of data centre projects across the country, amounting to about 113.8 GW of electricity load to run the centres. Virginia and Texas currently lead with the largest predicted data centre market and potential gas demand, with the former forecasted for 19.7 MW load for data projects and accompanying 1.8 Bcf/d gas demand, and the latter with 17.5 MW and 1.7 Bcf/d gas demand. Georgia, Illinois and Nevada comprise the remainder of the top five states.

The growth in natural gas demand is also attributable to rising LNG exports. According to 2024 data from EIA, North America’s LNG export capacity was expected to double by 2028, from 11.4 billion cubic feet per day (Bcf/D) in 2023 to 24.4 Bcf/d in 2028 (with the United States growing by 9.7 Bcf/d, and Canada and Mexico together growing by 3.3 Bcf/d), assuming that planned LNG projects begin operations as planned. As of the end of 2024, the United States completed its eighth LNG export terminal, with three other LNG export projects currently under construction. The USA remains the world’s largest LNG exporter, having hit a record 88.4 million metric tonnes at the end of last year.

While various companies have announced plans to decrease drilling rigs given the market uncertainty, there are natural gas operators (such as Sabine Oil & Gas) that have announced plans to increase drilling rigs on their acreage in the coming months.

While natural gas prices have been volatile in 2025, they have not suffered the type of price drops seen by crude oil. The growing relative demand and price stability of gas over oil appears to be resulting in more attention for gassier assets from buyers and investors, who have been positioning themselves to answer the rising natural gas demand.

Oil and gas companies strategically positioning themselves through M&A activity to benefit from rising natural gas demand

In light of the rising number of data centres and LNG exports, recent M&A activity among energy companies is trending towards natural gas-weighted deals. This shift is manifesting in unique ways across each of the upstream, midstream and downstream sectors.

Upstream

Recent deals demonstrate energy companies looking outside of Permian Basin

While major oil deals have largely been concentrated in the Permian Basin, the increasing gas focus has shifted emphasis to other plays throughout the USA. In April 2025, EQT Corporation agreed to acquire the upstream and midstream assets of Olympus Energy in a USD1.8 billion sale consisting of USD500 million in cash and USD1.3 billion in stock. EQT noted that the assets are near several proposed power generation projects in the Marcellus Shale, a natural gas-rich formation stretching across Pennsylvania, New York and West Virginia, putting EQT in a beneficial position for gas supply needs. Further, one year prior, Equinor ASA agreed to swap its onshore assets in the Appalachian Basin in exchange for 40% of EQT’s non-operated working interest in the Northern Marcellus Shale.

The Haynesville Shale has also been a focus, with its location near the Gulf Coast positioning it as a prime location for the USA’s LNG export corridor. Citadel LLC, a hedge fund, moved into the natural gas market with a USD1 billion purchase of upstream Haynesville assets from Paloma Natural Gas, a company holding 57,000 net mineral acres and backed by Encap Investments. The acquisition further demonstrates growing interest in the natural gas market, with companies focused on exports in addition to power generation.

Private equity funds

The upstream sector has recently seen an increase in fundraising, as it looks for opportunities from income-producing energy assets. Private equity capital raises had taken a dramatic dip since the USD73 billion raised in 2017. Late last year, EnCap and Quantum Capital Group announced closings of new energy funds totalling about USD15 billion in capital commitments. In May 2025, Kayne Anderson closed its largest energy private equity fund, Kayne Private Income Fund III, L.P., for USD2.25 billion in capital commitments. Kayne’s fund has already been put to use, providing over USD300 million of equity commitments to Terra Energy Partners II, LLC to aid the entity in acquiring cash-flowing oil and natural gas assets.

Family offices also step in as funding source

Family offices have been looking favourably on upstream opportunities as an inflation hedge and source of long-term, consistent cash flow. A major natural gas deal involved Purewest Energy, a leading Rocky Mountain independent natural gas producer, agreeing to a USD1.84 billion all-cash merger with a newly created entity sponsored by a private consortium of family offices consisting of A.G. Hill Partners, LLC, Cain Capital L.L.C., Eaglebine Capital Partners, LP, Fortress Investment Group, HF Capital, LLC, Petro-Hunt LLC and Wincorum Asset Management.

As noted by Stephens, family offices lack the same time constraints on their capital as private equity funds, making family offices an attractive option for long-term investment horizons. A representative of PureWest commented on the long-term value creation that the family office capital structure helped provide.

International buyers

Upstream M&A has also seen an influx of international companies capitalising on US gas demand. In April 2025, Tokyo Gas Co., through its joint venture owned with Castleton Commodities International, purchased 70% of Chevron U.S.A., Inc.’s Haynesville gas assets for USD525 million. Tokyo Gas is the largest natural gas utility in Japan.

Mubadala Energy, an energy company headquartered in Abu Dhabi, agreed to acquire a 24.1% interest in Kimmeridge’s SoTex HoldCo LLC, which owns Kimmeridge Texas Gas, its unconventional gas business. SoTex also owns Commonwealth LNG, its LNG business with an export facility in Louisiana.

European companies are entering the market as well. Last year, TotalEnergies acquired a 20% interest in Dorado leases in the Eagle Valley shale in Texas. TotalEnergies later acquired a 45% interest in dry gas producing assets from Lewis Energy Group in the Eagle Ford. While TotalEnergies is headquartered in France, it is the largest LNG exporter in the United States, and the company notes that these deals demonstrate their efforts to vertically integrate natural gas production into the US LNG value chain. The asset swap of Norwegian-based Equinor mentioned above is another recent example of international companies increasing their exposure to the US natural gas sector.

Midstream

The midstream sector has seen a surge in M&A activity, with notable deals in 2024 and 15 deals signed in the first quarter of this year, the largest amount since the fourth quarter of 2021. Many companies are investing in existing infrastructure through joint ventures and direct asset acquisitions rather than riskier construction projects – another effect of uncertainties resulting from tariffs and volatile commodity prices.

Joint venture prevalence

One recent example is a managed fund of ArcLight Capital Partners, LLC, acquiring an additional 25% interest in the Natural Gas Pipelines of America LLC, making it the largest owner of the infrastructure system with a 62.5% interest. NGPL is a joint venture among Arclight, Kinder Morgan, and Brookfield Infrastructure Partners, spanning nine states and serving as a major transporter of natural gas to LNG export facilities on the Gulf Coast. A partner of Arclight commented on NGPL’s importance to LNG exports and data centres, as well as the historic power demand growth likely to extend into the next decade.

Other notable joint venture activity includes Blackstone and EQT’s Corporation’s JV formation, which consists of EQT’s interest in various midstream infrastructure assets including Mountain Valley Pipeline, LLC, the Hammerhead Pipeline, and other storage and transmission assets. In addition, Devon’s USD375 million sale of its 12.5% interest in the Matterhorn Express pipeline values, according to EDA, the pipeline at up to USD6.1 billion and evidences a “broader market divergence, with natural gas and [natural gas liquid (NGL)] assets commanding stronger investor interest” amid slowing oil growth.

Private equity exits; strategics look to improve synergies

Direct asset acquisitions have also played a role. Since last year, several private equity firms have exited investments in the Permian to capitalise on market conditions, selling developed systems to strategic buyers looking to expand their business and improve operational synergies. In May 2024, Global Infrastructure Partners sold EnLink Midstream and Medallion Midstream to ONEOK, Inc. for USD5.9 billion. This purchase complemented ONEOK’s existing gas platform, with ONEOK commenting that it “expects the natural gas transmission assets to benefit from strong industrial growth demand related to data centers, liquified natural gas, ammonia and hydrogen.”

Later in the year, Stonepeak Infrastructure Partners sold WTG Midstream to Energy Transfer for USD3.25 billion, expanding Energy Transfer’s natural gas infrastructure. More recently, in April of this year, Phillips 66 closed its USD2.2 billion purchase of EPIC Y-Grade GP, LLC and EPIC Y-Grade, LP, midstream companies previously owned by Ares Management Corporation and operating NGL pipelines, facilities and distribution systems.

Pipeline projects on the horizon

While acquiring existing assets has been a lower-risk method for bolstering a company’s natural gas stake, that is not to say that major infrastructure investors lack plans for long-term pipeline projects. EDA has noted several upcoming projects to bring gas to the Southeast, partially driven by energy demand for data centres. Boardwalk Pipeline Partners reached a final investment decision (FID) in late 2024 to move forward with its Kosci Junction project, a new pipeline to extend from the Greenville Lateral on the Texas Gas Transmission System to an interconnection with the Southern Natural Gas system in Mississippi. Energy Transfer is engaging in the South Mississippi project, extending between Mississippi and Alabama. Kinder Morgan also reached FID on the Mississippi Crossing project, which will have a similar route to Energy Transfer’s proposed pipeline. Further, Kinder Morgan is co-ordinating with Williams Cos. to progress the South System Expansion 4 in Georgia and Alabama. All of the pipeline projects indicate a growing appetite to invest in transportation projects to meet growing gas demands in the US and abroad.

Downstream

The downstream sector has also seen a shift to gas-weighted activity. As of late, technology giants such as Microsoft, Google, Meta and Oracle have been investing billions into AI infrastructure, causing a surge in natural gas demand as energy companies seek ways to power data centres.

Utility companies are looking to capitalise on this demand by purchasing power generation assets. In January of this year, Constellation announced its acquisition of Calpine Corp., the largest US producer of energy from low-emission natural gas generation, for a net purchase price of USD26.6 billion, creating the nation’s largest clean energy provider and leading competitive retail electric supplier. In addition, NRG Energy is planning to double its power generation capacity through a USD12 billion purchase of 18 natural gas plants across nine states.

Private equity has also been involved in power generation. Earlier this year, Blackstone agreed to acquire Potomac Energy Center, citing its commitment to investing in electric infrastructure to meeting data centre demand. In addition, Partners Group agreed to acquire Encap-owned Power Transitions, which will also simultaneously purchase a portfolio of natural gas plants.

Conclusion

The volatility in oil prices has been a challenge for energy M&A activity in recent years. However, greater demand and price stability for natural gas is expected to maintain an upward trajectory for M&A activity as the number of data centres and operating LNG facilities increase. Energy M&A activity, having come off the recent spree of major oil-weighted deals, will likely continue to demonstrate unique trends as each of upstream, midstream and downstream sectors capitalise on these trends in the natural gas market in the coming years.