According to PwC US, mergers and acquisitions in the oil and gas industry saw a decrease in terms of deal value and volume in the first quarter of this year compared to the fourth quarter of 2014. This has been attributed to the drop in oil prices continuing to impact companies’ growth and strategies. During the first three months of this year, there were 39 oil and gas deals accounting for US$34.5 billion, compared to 70 deals worth US$103.5 billion on a sequential basis, and 60 deals worth US$26.4 billion in the first quarter of last year.
When it comes to deals valued over US$50 million, there were 26 corporate deals worth US$30.54 billion versus 13 asset deals worth US$4.1 billion in the first quarter of this year. Corporate deals represented 67% of the total deal volume and 88% of the total deal value, which included two midstream megadeals in the quarter. Overall, there were four megadeals worth US$23 billion, representing 67% of total deal value.
Declines in deals
Doug Meier, PwC’s US Energy Sector Deals Leader said, “the declines in deal activity that we saw in the last two months of 2014, particularly in the upstream space as a result of the drop in oil prices, continued in the first quarter of 2015. The velocity and magnitude of the decline in oil price have caused companies to focus internally on cost reduction and productivity enhancement activities, which have taken attention away from M&A as a growth vehicle. However, the current low oil price environment may present opportunities for potential acquirers who have the balance sheets to finance deals and the investing horizon to see through the current lows of the business cycle. We’re working with companies to develop programs to help them navigate the down cycles and be positioned for the up cycle.”
Total deal activity in the upstream segment reportedly dropped significantly in the first quarter, and accounted for 12 transactions representing US$3.6 billion, or a decrease of 60% and 71% in total deal volume and value, respectively, compared to the same period in 2014. In addition, the total number and value of oilfield services dropped 77%, to three deals, and 94%, to US$384 million, respectively, when compared to the same period in 2014. The total number of downstream deals remained the same at two while total deal value dropped 26%, compared to the first quarter of last year.
There were 22 midstream deals, contributing US$29 billion in value, or a 47% growth in deal volume and a 398% growth in deal value compared to the first quarter of last year. In addition, master limited partnership (MLP) dropdowns and affiliate transactions generated 45% of the midstream transactions totalling US$5 billion in the first quarter of this year.
PwC has said that there were nine deals with values over US$50 million related to shale plays in the first quarter of this year, totalling US$5.3 billion. This represents an 8% rise in total deal value, but a 31% drop in total deal volume when compared to the first quarter of 2014. Activity in the upstream sector related to shale plays dropped to four transactions and accounted for US$588 million. There were four midstream shale related details in the first quarter of 2015, accounting for US$4.6 billion, or a 160% increase in deal value compared to the same period in 2014.
John Brady, Partner at PwC’s Energy Practice said, “the drop in shale deal activity in the first quarter was highlighted by the low oil price environment as E&P companies looked to strategically realign their business objectives and investments in order to cut overall costs. As the uncertain environment has continued, E&P companies have been working to capture more value from their land organisations following previous acquisitions.”
The most active shale play for M&A with values over US$50 million during the first quarter of this year was the Permian, which led in activity with four deals worth U$1.5 billion. The Eagle Ford contributed three deals worth US$1.2 billion. The Marcellus Shale contributed two deals worth US$567 million. The Bakken and Haynesville each generated on deal, but the Bakken Shale led in overall deal value with one deal worth US$3 billion.
Financial investors continued to show interest in the oil and gas industry with 11 transactions worth US$4.5 billion, a slight decrease in total deal volume compared to 12 deals worth US$3.6 billion during the same period in 2014. Rob McCeney, PwC US Energy & Infrastructure Deals Partner commented, “financial investors will continue to look for distress opportunities during this period of commodity price uncertainty and will be prepared to deploy capital more extensively once we achieve a period of commodity prices stability.”
Edited from press release by Claira Lloyd