According to the EY ‘Global oil and gas transactions review 2014’, global oil and gas deal value increased by 69% last year while deal volume continued its decline amidst rising volatility. Commodity price uncertainty, according to the report, will continue to influence transaction decisions in the year ahead as companies seek financial resilience.
Following three years of relatively strong and fairly stable oil prices, weakening market fundamentals in the second half of last year finally outweighed geographical uncertainty, causing oil prices to decline by over 50% and transaction activity to slow by year end. The review has highlighted how 2014 was a notable year for oil and gas transactions despite a 20% drop in oil and gas deal volume to 1885 from 2367 in 2013. Total global deal value grew however by over 69% from 2013 to US$443 billion. The report also shows that a similar story was the case for each oil and gas segment. Deal value increased in upstream by 21%, downstream by 88% and midstream by 115% and oilfield services by 242%. Meanwhile, deal volume dropped for each segment, except for downstream.
Andy Brogan, Global Oil & Gas Transaction Advisory Services Leader at EY said, “a number of transaction trends were evident in 2014, including bigger deals, less acquisition spend by national oil companies (NOCs), continued interest in US unconventional assets and expansion of private equity interest in US unconventional assets and expansion of private equity interest. Looking ahead, we expect to see some disruption from recent oil price volatility but for strength to return to the oil and gas M&A market as the year goes on and companies grapple with increased cost and margin pressures.
In the report EY highlights that upstream transactions continued to dominate the global transaction landscape, accounting for approximately 75% of the total global deal volume despite a 22% decline year on year. Meanwhile, upstream share of total deal value fell below 50% for the first time in 2014 following a surge in non-upstream deal activity. Deal value did, however, grow by 21%. Activity in the sector was driven largely by US consolidation and global megadeals. 65% of the total value of global upstream transactions were attributable to 50 deals greater than US$1 billion in value.
Downstream transaction activity recorded its strongest deal volumes and aggregate volume in two years with a 16% increase over 2013, according to report findings. It is the only oil and gas segment to record deal volume growth last year. Total disclosed deal value also increased by 88% year on year to US$25.1 billion. The US accounted for the largest number of downstream transactions at approximately 56%, while Asia and Europe were responsible for 16% and 18% respectively. While European activity did fall by 30% in the wake of continued economic uncertainty and supply/demand imbalances last year, the downstream segment shows no sign of slowing.
Brogan commented, “over 70% of downstream transactions in 2014 involved storage terminals in the US, and that figure could be on the rise if the country begins exporting crude oil. Given current oil price dynamics, we expect to see competition between oil and gas companies, independent storage operators, oil traders and infrastructure funds increase in the hunt for the right asset.”
The number of midstream transactions dropped off in 2014, the report found, but disclosed value was up. With 102 deals in 2014, activity was down by more than 23%. Deal value doubled however to US$16 billion as a result of several large transactions. The US and Canada dominated the sector for value and volume, accounting for over 78% of all midstream deals and approximately 94% of the global midstream disclosed value. Deal activity involving pipelines accounted for the largest portion of midstream activity.
Of 2015 Brogan said, “oil and gas companies around the world are grappling with how to generate returns and improve costs in the current environment of falling oil prices. The price of oil may dip further in the absence of short term changes to the global oil balance, but we expect the market to strengthen and transaction activity to increase by the latter half of 2015. Improved prices won’t be enough to sustain success. Managing the structural shift underway in today’s oil and gas sector requires financial, operational and portfolio resilience.”
Edited from press release by Claira Lloyd