Dealmaking activity in the oil and gas sector surged by 57 percent in the previous year, as energy firms ramped up development expenditures, fueled by enhanced cash flows from past profits, according to a report issued on Tuesday.

Leading energy corporations invested $49.2 billion in mergers and acquisitions in 2023, a rise from $31.4 billion in 2022, as per a report by Ernst & Young. This escalation was predominantly propelled by large-scale deals within integrated oil and gas companies. M&A activity is anticipated to persist through this year and extend into 2025, driven by further mega deals, according to EY.

Expenditures on oil and gas exploration and development also escalated last year, increasing by 28 percent to reach $93.1 billion. This surge in investment for dealmaking and reserve expansion signifies a strategic shift, following a prolonged emphasis on shareholder returns rather than growth, a tactic many companies adopted to attract back investors who had exited the sector.

In 2023, oil and gas companies reduced their spending on dividends and share buybacks to $28.9 billion, down from a record $57.7 billion in 2022. This sector-wide consolidation intensified M&A activity, elevating total corporate expenditures to $142.3 billion, a 36 percent increase from 2022.

“We began to observe in 2023 a trend towards consolidating the positions held by operators,” stated Bruce On, a partner at EY’s strategy and energy transactions group, highlighting a strategic shift towards investing in core operations. Companies with ample cash were concentrating on enhancing efficiency through scale and utilizing existing operations, he added.

Despite this, profits for these companies declined by 55 percent in 2023 to $83.9 billion, mainly due to reduced West Texas Intermediate (WTI) crude oil spot prices, according to the report. Chevron emerged as the leading purchaser of properties in 2023, with total acquisition costs amounting to $10.6 billion, largely attributed to its $6.3 billion acquisition of Denver-based PDC Energy. Exxon Mobil finalized the $60 billion acquisition of Pioneer Natural Resources in May, while Chevron announced in October its intention to acquire Hess for $53 billion, though this deal is postponed until at least mid-2025 due to ongoing legal issues.