PwC: Low oil prices reduce 1Q M&A activity

Mergers and acquisitions (M&A) activity in the US oil and gas industry took a hit in value and volume during the first quarter compared with fourth-quarter 2014, as the drop in oil prices continued to impact companies’ growth strategies, according to a report from PwC US.

A total of 39 oil and gas deals with values greater than $50 million took place during the first quarter, accounting for $34.5 billion, down from 70 deals worth $103.5 billion in fourth-quarter 2014 and 60 deals worth $26.4 billion in first-quarter 2014. M&A activity for full-year 2014 hit 10-year highs in deal value and volume (OGJ Online, Jan. 29, 2015).

While the decrease in deal activity was consistent with first quarter historical trends, corporate deals surpassed asset transactions for the first time since 2010, PwC notes.

There were 26 corporate deals each valued at more than $50 million, representing a total value of $30.4 billion vs. 13 asset deals worth $4.1 billion during the first quarter. Corporate deals represented 67% of the total deal volume and 88% of the total deal value, which included two midstream megadeals—deals valued at more than $1 billion. Overall there were four megadeals worth $23 billion, representing 67% of total deal value.

“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,” explained Doug Meier, PwC’s US energy sector deals leader.

“The velocity and magnitude of the decline in oil prices 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,” he said. “However, the current low 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.”

Upstream activity down

Total deal activity in the upstream segment dropped in the first quarter, accounting for 12 transactions representing $3.6 billion, a decrease of 60% and 71% in total deal volume and value, respectively, compared with the same period last year.

Additionally, the total number and value of oil field services deals decreased 77% to three deals and 94% to $384 million, respectively, when compared with the same period last year. The total number of downstream deals remained the same at two while total deal value decreased 26%, compared with first-quarter 2014.

There were 22 midstream deals contributing $29 billion in value, a 47% rise in deal volume and 398% growth in deal value compared with first-quarter 2014. Additionally, master limited partnership dropdowns and affiliate transactions generated 45% of the midstream transactions totaling $5 billion in the first quarter.

Financial investors continued to show interest in the oil and gas industry with 11 transactions worth $4.5 billion, a slight decrease in total deal volume compared to 12 deals worth $3.6 billion during the same period in 2014. “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,” said Rob McCeney, PwC US energy and infrastructure deals partner.

PwC notes that foreign buyers reported four deals accounting for $1.3 billion in value, a 33% decrease in deal volume and 67% decrease in deal value compared to the same period last year.

Overall shale deal value up

Nine deals with values greater than $50 million related to shale plays took place during the first quarter, totaling $5.3 billion, an 8% increase in total deal value but a 31% decrease in total deal volume when compared to first-quarter 2014.

Activity in the upstream sector related to shale plays dropped to four transactions and accounted for $588 million, 33% of total upstream deal volume and 16% of the total upstream deal value in the first quarter. Four midstream shale-related deals took place in the first quarter, accounting for $4.6 billion, a 160% increase in deal value compared with the same period in 2014.

“As the uncertain environment has continued, E&P companies have been working to capture more value from their land organizations following previous acquisitions,” explained John Brady, a Houston-based partner with PwC’s energy practice.

The most active shale play for M&A with values greater than $50 million during the first quarter was the Permian, which led in activity with four deals worth $1.5 billion. The Eagle Ford shale contributed three deals worth $1.2 billion. The Marcellus shale contributed two deals worth $567 million. The Bakken and Haynesville shale plays each generated one deal, but the Bakken led in overall deal value with one deal worth $3 billion.

PwC’s oil and gas M&A analysis is a quarterly report of announced US transactions with value greater than $50 million analyzed by PwC using transaction data from Global Data.

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