The shale industry is showing signs of maturity. Some acquisition trends appear to be burgeoning, such as acquisition premiums, more debt, and looser hedging requirements. These portend higher values and perhaps more of an emphasis on longer-term drilling inventory as opposed to nearer-term production metrics. Let us take a quick look at them.

Acquisition Premiums

For many years in the oil and gas industry, there were numerous deals in public markets whereby the announced price of a company was at or near its prevailing stock price. The leverage, margins, and limited patience exhibited by shareholders contributed to conservative bidding. The rationale was centered around operating synergies, leverage, and cohesive acreage integration.

In the past year, this dynamic has changed. Exxon’s acquisition of Pioneer, Chevron’s purchase of Hess, and Crescent’s announcement to buy SilverBow are a few recent examples of premiums paid above pre-announcement prices. Larger buyers have had more cash on hand and buying power to make acquisitions. Couple that with a relatively limited universe of targets that can significantly generate marketplace interest, and you have the ingredients for commanding a premium.

Another dynamic that appears to be looming below the surface in these acquisitions is the dwindling number of top-tier drilling locations

Another dynamic that appears to be looming below the surface in these acquisitions is the dwindling number of top-tier drilling locations in the respective basins that are being targeted. According to the EIA, the number of drilled but uncompleted well locations has declined by almost half compared to about three years ago. At its peak, there were nearly 8,600 such locations. Currently, there are just above 4,500. Buyers know this and may be getting longer-term inventory in their coffers now as opposed to later when it may be more expensive to acquire, thus contributing to a premium buying mindset.

Debt Trends

I have written before about how debt markets have been averse towards oil companies since the last big wave of bankruptcies in 2015 and 2016. This appears to be changing somewhat.

When I was at the Hart Energy Super DUG conference last month, Matthew Bernstein of Rystad Energy pointed out that there appears to be a trend of willingness to take on new debt in the shale patch. Since late 2022, over $15 billion of new net debt has been taken on in the industry. Even with higher interest rates, this can lower the cost of capital, incentivize buyers to pay more, and get higher levered returns to shareholders. The industry has been at or near historical lows when it comes to relative leverage, so this is a bit of a micro-trend, yet it may still hint at a broader change of the proverbial winds.

Even with higher interest rates, this can lower the cost of capital

Another interesting aspect is that much of the debt is sourced from a different market segment. Many loans are now coming from regional banks instead of larger national banks. This is useful for companies as they now have access to a larger pool of willing lenders.

Hedging Requirements Are Loosening

One of the lesser-discussed but larger impact trends has been the requirements of banks to have tight hedging books that protect bankers from downside commodity price exposure. Despite the safety this provides to lenders, the requirements hamstring companies from upside opportunities if prices increase.

Overall, companies have lost billions in the past five years, and management teams have not made a secret of their disdain for sending large amounts of money to trader counterparties instead of shareholders. Bankers appear to be hearing this, too, and companies are taking on more upside opportunities while raising the floor prices of their hedges. This indicates that companies (and banks) see more upside going forward and are willing to give more latitude to their trading policies. This, of course, could backfire, but that remains to be seen.

These trends suggest that as consolidation continues, there is optimism that oil (and, to a lesser extent, gas) will continue to create more value for shareholders, and the sector will outperform for some time to come.

Originally appeared on Forbes.com.