Technology is a driving force behind recent investment opportunities and changes in the oil and gas M&A landscape, noted energy finance experts.
Speaking Nov. 19 at the Deloitte Oil & Gas Conference in Houston, a panel of energy finance experts commented on investing, financing, and mergers and acquisitions in the oil and gas sector.
While values are down about 30% over a year ago, the upstream sector still makes up the largest piece of the M&A puzzle with the midstream sector seeing slightly larger deals and transactions with deal values close to flat, according to Jason Spann, partner, Deloitte Tax LLP, who served as the panel moderator. Deal volume in the oilfield services sector has been robust with an uptick of 30%-40% in the number of deals getting done, while deal values remain flat or slightly down.
To conduct deals and develop assets, private equity and capital markets continue to play a big role in raising capital.
“As a capital provider there’s a fantastic opportunity set,” said Alex Krueger, president and co-head of buyout funds for First Reserve. Think about how investing opportunities in oil and gas are changing, he said. Driving the changes: Technology.
There have been a few fundamental shifts onshore, he noted, but the most robust change has been in horizontal drilling and fracturing and the ability to drill in tougher environments. “That and interpretation have opened up things we didn’t think were available five years ago when people were talking about Peak Oil,” he said.
Another shift stemming from technology and the “unlocking” of additional resources is the proliferation of master limited partnerships (MLPs) in the industry.
“MLPs are true energy companies with some of the most talented, capable management teams, but there are over 100 MLPs and everyday new ones,” noted Daniel Castagnola, Managing Director, Natural Resources at GE Energy Financial Services.
Companies are forming MLPs that wouldn’t have been able to five years ago. The industry can’t sustain so many MLPs growing at double digit rates, and thus, expect to see a consolidation in the MLP market, he said.
Maynard Holt, co-president and Head of E&P Investment Banking at Tudor, Pickering, Holt & Co. noted some “big picture” elements in the global M&A space.
During the 2009-2012 era, he said, global companies were looking to add more core North America holdings to their portfolios. “Fundamentally, having more North American assets were going to be good for the ballast of the ship,” he noted—even before the world started talking about shale.
Competition for the assets forced companies to buy a lot, and fast. Now, he said, the market has shifted from “big guys buying stuff to big guys selling stuff,” and a reverse in thinking about the scale of assets. “Right now, very few people think it would be better to be bigger,” and expects this mentality to lead to basic consolidation of large scale positions.
Overall, he said, the need for capital in North America is intense, sending companies on a global hunt for capital.