Upstream companies cut 208 deals worth $156 billion in 2019, with value up $26 billion year-on-year. However, the number of transactions was 40 percent below the five-year trend, pointed out latest report by Deloitte.
That, combined with the fact that the Oxy/Anadarko transaction comprised more than a third of the total value, meant that 2019 proved sluggish, reflecting the overall weakness in the oil and gas sector.
In fact, there were only $5.8 billion in deals in Q1, the lowest value seen in any quarter in more than a decade. Weak equity markets and continued volatility in oil prices have widened the bid-ask spread and strained companies’ finances, forcing them to redirect their near-term strategies to focus on cash flow at the expense of production growth.
Regionally, the United States continues to be the prime market for upstream M&A, representing more than 60 percent in terms of both deal volume and value.
However, sensitivity to oil prices and weak market sentiment drove the contraction in basin-specific deals in the United States, with most of the deals taking place across multiple basins or, absent that, focused solely on the Permian.
Out of the roughly $95 billion in US M&A, asset-focused deals accounted for $25 billion, reflecting a fall of 50 percent year-on-year.
Additionally, for the first time ever, one-fourth of the total asset deal value came from royalty or joint development agreements, including Ecopetrol’s $1.5 billion joint venture with Oxy in the Midland Basin, highlighting the lower risk appetite for many players, including private equity.
Outside of that, private money remained on the sidelines for the most part despite availability of dry powder—reflecting not just concerns about risk and valuations, but also potential problems exiting shale investments in the future.
