Energy and natural resources: consolidation and emerging trends

Australia's energy and natural resources sector saw significant M&A activity in 2025, characterised by ambitious dealmaking efforts and several high-profile failures. 

The sector's consolidation trajectory reflects global trends toward energy transition, portfolio rationalisation and strategic repositioning amid evolving regulatory and market dynamics.

Key trends

• Coal sector restructuring accelerates with major international players divesting Australian assets, although completion challenges persist amid market volatility and regulatory scrutiny.
   
• Oil and gas consolidation faces headwinds following the collapse of the A$36.4 billion Santos-ADNOC transaction, highlighting valuation gaps, regulatory hurdles and financing constraints in an increasingly concentrated market.
   
• Hydrogen investment retreats intensify with BP's exit from major Australian projects, signalling broader global industry reassessment of green hydrogen economics and commercial viability.
   
• Renewables attract institutional capital with infrastructure funds and private equity driving consolidation in solar, wind and energy storage assets as the energy transition accelerates.
   
• Regulatory complexity increases with the new merger control regime and increasing foreign investment scrutiny significantly influencing deal structures and completion timelines.
   
• 2026 outlook suggests selective consolidation focused on strategic assets and technology integration rather than transformational mega-deals.

Coal: divestment challenges persist

The coal sector witnessed continued consolidation, as international mining companies divested Australian assets, while domestic and regional players pursued strategic acquisitions. Anglo American's proposed A$3.8 billion sale of its Queensland steelmaking coal assets to Peabody Energy represented the year's most significant coal transaction attempt.

However, Peabody's withdrawal in August 2025 highlighted the persistent challenges facing coal asset transactions. While the withdrawal was driven by transaction-specific issues, it occurred against a backdrop of broader market concerns - including the outlook for steelmaking coal demand, ESG-related financing constraints and regulatory uncertainties impacting long-term asset values.

As public companies retreat from the sector, private capital groups are showing growing interest in coal assets, viewing them as opportunities to acquire cash-generating investments at attractive valuations.

This trend reflects market bifurcation, with ESG-focused institutional investors avoiding coal exposure, while opportunistic private capital seeks value in discounted assets with patient capital strategies.

The sector's consolidation challenges stem from the fundamental tension between immediate cash generation capabilities and long-term transition risks, requiring experienced buyers with clear strategies for managing both operational performance and eventual decarbonisation pathways.

Oil and gas: major deal collapse signals market headwinds

The most significant development in the oil and gas sector this year was the XRG-led consortium's withdrawal from its A$36.4 billion takeover bid for Santos in September 2025. This failure to complete underscores the considerable   challenges in executing large-scale, complex M&A, including valuation misalignment, financing complexities and heightened regulatory scrutiny.

The proposed Santos-XRG transaction followed a pattern of consolidation in Australia's oil and gas sector, building on previous successful transactions including the BHP Petroleum-Woodside merger and Santos's acquisition of Oil Search. These precedents demonstrate that consolidation remains a multi-year trend driven by scale requirements, operational efficiency imperatives and portfolio optimisation needs.

However, the XRG-led consortium's withdrawal reflects broader sector challenges, including volatile commodity prices, uncertain demand outlooks and increasing scrutiny of fossil fuel investments from both regulators and stakeholders. The failed transaction also highlights the hurdles international buyers face when acquiring major Australian energy assets, particularly given Foreign Investment Review Board (FIRB) processes and domestic energy security concerns.

Successful transactions increasingly demand sophisticated structuring, realistic valuations and clear, strategic rationales addressing both immediate operational benefits and long-term energy transition and security considerations.

Hydrogen: investment retreat and commercial reality

The hydrogen sector experienced significant setbacks with Fortescue Future Industries’ high-profile withdrawal and BP's decision to exit its major Australian green hydrogen projects in 2025. BP's withdrawal from the A$36 billion Australian Renewable Energy Hub in Western Australia and Fortescue’s global retreat, highlight broader industry reassessment of green hydrogen economics and development timelines.

The exits reflect mounting concerns about the commercial viability of large-scale green hydrogen projects, including prohibitive capital requirements, uncertain demand profiles and technological challenges. BP’s strategic pivot towards oil and gas investments highlights the tension across the sector between achieving energy transition ambitions and near-term financial returns, with hydrogen projects struggling to demonstrate acceptable risk-adjusted returns.

The hydrogen sector's challenges extend beyond individual project economics to fundamental questions about global market development, infrastructure requirements, and government policy support mechanisms. Western Australia's government has actively courted Asian investors to acquire BP's stake, recognising hydrogen's strategic importance for the state's energy transition plans whilst acknowledging the need for patient capital willing to accept extended development timelines.

Instead of traditional asset acquisitions, consolidation in the hydrogen sector has shifted towards technology partnerships, joint ventures, and strategic alliances that share development risks and costs. Successful hydrogen projects increasingly require government support, long-term offtake agreements, and integrated value chain approaches from stakeholders spanning production, transport, and end-use applications. Achieving an integrated value chain solution to unlock the opportunity remains very challenging.

Renewables: institutional capital drives growth

In 2025, the renewables sector attracted significant institutional investment, with infrastructure funds and private equity leading consolidation efforts. KKR's acquisition of remote power specialist Zenith Energy highlights the sector's appeal to institutional investors seeking stable, long-term returns from essential infrastructure assets.

Renewables acquisitions reflect Australia's accelerating energy transition ambitions and the increasing technological maturity of solar and wind projects. These technologies have now achieved cost competitiveness with traditional energy generation sources, attracting investors seeking energy transition exposure whilst generating predictable cash flows from long-term power purchase agreements.

Increasing consolidation also reflects the importance of scale requirements in the renewable energy sector. Larger platforms achieve economies of scale in project development, financing and operations whilst building capabilities across multiple technologies and geographical markets, creating competitive advantages in an increasingly sophisticated market

Private equity and infrastructure funds, like KKR, have become increasingly active, recognising the sector's potential for stable returns and portfolio diversification benefits. These investors typically bring patient capital and operational expertise that can accelerate project development and enhance asset performance through sophisticated management platforms.

Regulatory landscape and market dynamics

Australia's energy and natural resources M&A activity in 2025 was significantly influenced by regulatory developments and market dynamics. The Australian Competition and Consumer Commission's scrutiny of major transactions reflects concerns about market concentration and consumer impacts, particularly in essential energy infrastructure.

Foreign investment approval processes played crucial roles in shaping transaction outcomes. FIRB's assessments considered national security implications, critical infrastructure concerns, and strategic asset protection requirements, with energy assets receiving heightened scrutiny given their strategic importance. ESG considerations are also increasingly influencing transaction structures, investor appetite and investor type. Companies with clear carbon transition strategies and strong environmental credentials attracted premium valuations, whilst those with significant fossil fuel exposure faced valuation discounts and limited buyer interest from mainstream institutional investors.

Outlook for 2026

The outlook for Australian energy and resources M&A in 2026 suggests continued, yet - more selective consolidation, driven by several key factors:

• Market participants anticipate a shift towards strategic assets over transformational mega-deals. Companies are expected to prioritise acquisitions that enhance operational capabilities, provide access to critical technologies, or strengthen market positions in key segments, particularly those aligned with energy transition objectives.
   
• The energy transition will continue driving consolidation in renewables and energy storage, with infrastructure funds and specialist investors remaining active. Traditional fossil fuel assets may face continued challenges attracting buyers with less focus on energy transition and more focus on mid-term revenue generation.
   
• Regulatory scrutiny will intensify with the introduction of the mandatory merger control regime in January 2026, leading to more sophisticated deal structures and longer approval timelines. Successful transactions will need to clearly demonstrate consumer benefits and alignment with Australia's energy transition and energy security objectives.
   
• Technology integration will become increasingly important, with companies seeking acquisitions providing access to digital capabilities, automation technologies and innovative energy solutions. This trend reflects the sector's evolution towards more sophisticated, technology-enabled operations requiring scale and specialisation.

The consolidation landscape will continue to balance immediate commercial imperatives and long-term energy transition requirements. Successful participants will navigate both effectively, delivering stakeholder value while supporting Australia's sustainable energy future.