The decline comes as large companies with strong balance sheets are targeting the best properties in deals valued upwards of a billion dollars, while smaller firms with discounted equity have been unable to find financially attractive assets, Enverus wrote in a note on Tuesday.
Oil companies are also grappling with less productive wells, with some viewing asset purchases as a way to keep oil and gas flowing. Larger companies with better inventories tend to have a premium built into their stock, giving them more buying power, Enverus wrote.
"It's a market where the rich get richer," said Andrew Dittmar, a director at Enverus who focuses on mergers and acquisitions.
Publicly traded U.S. shale firm Diamondback Energy added some 500 drilling locations to its portfolio by spending $3 billion to purchase Lario Oil & Gas and Firebird Energy during the fourth quarter. Both deals were focused on the Midland Basin in Texas.
Diamondback's added inventory was "more of a luxury than a necessity," Dittmar said of those deals.
Rival Marathon Oil, which already had about 10 years of drilling locations, added some 550 more when it purchased privately held Ensign Natural Resources in the Eagle Ford for $3 billion in November.
"There are a few options available for small-cap companies struggling to secure inventory in the current market," Dittmar said, adding that the need to secure inventory will likely support deal-making this year.
He anticipates smaller companies may look to build their inventories piecemeal, creating a higher-volume but lower deal value mergers and acquisitions market, or look at non-core assets larger companies are shedding.
(Reporting by Liz Hampton in Denver; Editing by Muralikumar Anantharaman)
By Liz Hampton