HOUSTON – Deloitte’s latest Oil & Gas Year-End M&A Report has found that the total number of merger and acquisitions deals for 2015 across all oil and gas sectors was lower than during the “Great Recession” of 2008-2009.
The report saw that deal count declined 53% from 709 total deals across all sectors in 2014 to 379 in 2015; deal value activity was down, too - about 20% when compared to 2014. In terms of deal count, North America remained the most active region for M&A, with Europe following. The exploration and production sector was the most active, representing about two-thirds of the number of deals and about half of the deal valuations in aggregate.
Many in the industry had expected M&A deals to skyrocket in 2015 after oil prices began to fall in late 2014. The report found this to be far from the case, and said that financially strapped companies had been able to find other avenues of cost-cutting rather than selling assets or being acquired.
Another possible contributor to the surprisingly stale M&A market was that lending agencies provided cost-cutting initiatives, such as settling hedge contracts and providing new equity. This caused potential sellers to not be as desperate to sell as buyers would have liked, Deloitte said.
The report’s findings showed that M&A activities in the exploration and production sector faced the lowest year in 2015 since 2012 for both transactions and deal value. Exploration and production companies continued to make low-risk development decisions, as most deals in 2015 were acquisitions of producing fields at 123 compared to mergers at 43.
However, as hedging contracts expire and lenders cannot provide further equity, exploration and production activity within the sector is forecasted to become more active going into 2016.
Constraints will remain on M&A activity due to market uncertainty which may delay inflow of money from new investors, according to the report.
Oilfield services faced a significant decline in M&A deals from 2014 to 2015 with the deal value falling 64% and a 70% decline in transactions. The Schlumberger-Cameron deal accounted for 60% of the total deal value.
Despite the lack of M&A activity, the sector could change in other ways. Niche service providers are expected to continue to exit, whereas broader oilfield service companies are expected to position themselves for the upturn of crude oil prices. 2016 looks to continue to provide limited M&A opportunity for the oilfield services sector, according to the report.
Deloitte said that “the M&A market in 2016 may continue to languish unless oil prices and natural gas prices recover to a more economic level.” Prices have been depressed and will likely remain as such until rebalancing occurs with demand growth eroding the inventory overhang. But as funding sources begin to become scarce and hedging contracts expire, 2016 may encounter an increase of M&A activity with more distress-driven transactions out of desperation for capital.