Economist’s Corner Corporate mergers and acquisitions (M&A) in the US exploration and production (E&P) space have occurred at a pace of about three to four public company mergers per year for the past decade. This pace does not appear correlated to commodity price swings. Despite the two recent episodes of severe price declines, one in late 2008 and another in late 2014, it does not appear that companies are choosing to take advantage of “cheap” valuations as a result of commodity price, and the resulting stock price, declines. In actuality, Fig. 1 shows M&A activity tends to slow down when commodity prices move dramatically (high or low) and resumes after a period of sustained prices. So what motivates companies to make corporate acquisitions? In most industries, M&A is driven by financial rationales such as accretion to cash flow per share or earnings per share. In addition to long-term financial value, E&P companies have other motivations that drive the mergers. Certainly there are corporate synergies and general and administrative (G&A) cost reductions that are likely, as in any other industry, but the rationale extends to unique situations within the E&P space: companies often use mergers to gain scale and efficiencies, enter locked-up plays, add technical expertise, or add low-risk proved reserves. While no deal falls into only one category, specific ones can be instructive in seeing these motivations at play. Synergies and Scale M&A deals allow a reduction in G&A costs because a combined organization leads to reduced administrative fees and more production being operated with fewer personnel. For example, when Breitburn acquired Quantum Resources in July 2014, there was significant asset overlap and management estimated USD 23 million in synergies in the first year. When assessing G&A synergies, it is common to start with the assumption that cash G&A costs will be reduced by 50% as a result of the M&A activity. Much of that reduction is derived from eliminating the administrative cost burden associated with being a publicly traded company. Larger, more financially sound companies tend to receive better treatment in the public markets, especially in the face of declining prices. The announcement of Whiting Petroleum’s acquisition of Kodiak Oil & Gas listed synergies and scale as reasons, but also said that the combination of companies will improve its financial strength.