NEW YORK - Dealmaking activity in the oil and gas industry increased 57% last year as energy companies boosted development spending, driven by higher cash flows from profits in prior years, according to a report released on Tuesday.

Top energy companies spent $49.2 billion on mergers and acquisitions in 2023, up from $31.4 billion in 2022, according to a report from Ernst & Young. The increase was mainly driven by mega deals among integrated oil and gas companies.

M&A activity is expected to continue this year and into 2025, driven by more mega deals, EY said.

Money spent on tapping oil and gas also increased last year, with exploration and development expenditures growing 28% to $93.1 billion.

The jump in spending on dealmaking and expanding reserves marks a shift in strategy following a years-long focus on shareholder returns over growth, which many firms had employed in a bid to lure back investors who had fled the sector.

Last year, oil and gas companies halved spending on dividends and share repurchases payments to $28.9 billion from a record $57.7 billion in 2022.

The sector-wide consolidation spurred M&A activity, boosting companies' overall expenditures to $142.3 billion, 36% higher than in 2022.

"We started to see in 2023 a focus to consolidate the positions that operators had," Bruce On, a partner at EY's strategy and energy transactions group, said in an interview, noting a shift in strategy to invest in core operations.

Companies flush with cash were focused on driving efficiency through scale and leveraging existing operations, he said.

Their profits fell 55% in 2023 to $83.9 billion, primarily due to lower West Texas Intermediate (WTI) crude oil spot prices, the report said.

Chevron was the top buyer of properties in 2023 with total property acquisition costs of $10.6 billion, largely due to its $6.3 billion deal to buy Denver-based oil exploration and production company PDC Energy, the report said.

Exxon Mobil completed the $60 billion acquisition of Pioneer Natural Resources in May this year. In October, Chevron announced an agreement to buy oil producer Hess for $53 billion. The deal, however, is delayed until at least mid-2025 due to a legal dispute.

(Reporting by Nicole Jao; Editing by Muralikumar Anantharaman)