PwC: Midstream boosts 2Q M&A activity in oil, gas industry

The US oil and gas industry experienced an uptick in second-quarter mergers and acquisitions compared with the first quarter, facilitated by heightened interest in midstream deals, according to a quarterly report of announced US transactions with value greater than $50 million.

Analysis from PwC US using transaction data from Global Data indicated that a total of 47 deals occurred during this year’s second quarter, accounting for $38.8 billion. Both totals are up from the 39 deals worth $34.5 billion that took place in the first quarter (OGJ Online, May 11, 2015). During the same period last year, there were 65 deals worth $48.9 billion.

The professional services firm attributes the rise in second-quarter 2015 activity to a 110% jump compared with second-quarter 2014 in the number of deals in the midstream segment, where value increased 130%. Notably, last year’s overall second-quarter M&A activity hit a 5-year high (OGJ Online, July 30, 2014).

Midstream comprised 44% of total deal activity during this year’s second quarter, with 21 deals accounting for $27.7 billion. Master limited partnership dropdowns and affiliate transactions generated 38% of midstream transactions, totaling $19.5 billion.

“Interest in the midstream sector drove second-quarter deal volume and value as corporate buyers pursued opportunities to grow their gathering and transportation operations as US onshore production continued to increase despite the low oil and gas price environment,” explained Doug Meier, PwC’s US energy sector deals leader. “Going forward, we’ll see activity continue as businesses realign their strategies to the current oil price realities.”

Upstream activity continues decline

Total upstream deal activity continued to drop in the second quarter, accounting for 18 transactions representing $8.3 billion, or a decrease of 55% and 67% in total deal volume and value, respectively, compared with the same period in 2014.

The total number and value of oil field services deals decreased year-over-year by 33% to four deals and 40% to $1.6 billion, respectively. The total number and value of downstream deals also decreased 56% and 87%, respectively, compared with second-quarter 2014.

In shale plays, 14 deals with values greater than $50 million occurred in the quarter, totaling $11.2 billion, a 46% decline year-over-year in both total deal value and total deal volume.

“Buyers in the oil and gas industry continue to be opportunistic in shale formations as investors focused on specific resources to further enhance their positions in relevant basins,” said John Brady, a Houston-based partner with PwC’s energy practice.

But activity in the upstream sector related to shale plays remained low, accounting for nine transactions totaling $5.5 billion, compared with 21 deals worth $11.6 billion in second-quarter 2014. Five midstream shale-related deals in the quarter accounted for $5.7 billion, as deal volume remained the same. But deal value fell 37% year-over-year.

The most active shale play for M&A with values greater than $50 million during the second was the Utica, which led in activity with five deals worth $1.5 billion. The Bakken, Eagle Ford, and Marcellus each contributed two deals worth $2.9 billion, $1.2 billion, and $197 million, respectively. The Permian led in overall deal value with one deal worth $3.9 billion.

Investor interest piqued

Financial investors took part in 17 transactions worth $10.8 billion, a 240% increase in deal volume and 39% increase in deal value compared with the same period in 2014. Equity commitments from private investors accounted for 13 of the deals, totaling $3.8 billion.

“Financial investors see opportunities to make investments as companies adjust their portfolios in this dynamic environment,” commented Rob McCeney, PwC US energy and infrastructure deals partner. “With cash on hand and experienced management teams in place, we expect to see more private equity commitments and deals in the second half of 2015.”

There were 32 corporate deals worth $34.2 billion vs. 15 asset deals worth $4.6 billion in the second quarter. Corporate deals represented 68% of total deal volume and 88% of total deal value, which included three midstream megadeals (deals valued at more than $1 billion). Overall, five megadeals took place worth $25.9 billion, representing 67% of total deal value in the quarter.

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