Oil & Gas M&A Deal Value Up in 2018

Global oil and gas total deal value increased by US$ 79.7b during 2018 to reach US$426.8b, despite a decrease of 18% in deal volume, said EY Global oil and gas transaction review 2018.

It said that while the first two quarters of 2018 saw greater deal appetite aided by rising oil prices, caution returned in the second half of the year due to a decline in the oil price to 2015 levels.

Looking ahead, the 2019 mergers and acquisitions (M&A) environment will likely be shaped by lower commodity prices, uncertain political climate and energy transition strategies, the review said.

Andy Brogan, EY Global Oil & Gas Transaction Advisory Services Leader, says: “The deal environment for the past three years has reflected adjustment to a perceived new normal, as the energy transition continues to weigh heavily on companies’ portfolio strategies."

He added: "Risk sensitivity and a continued focus on portfolio optimization has shifted capital from upstream to mid and downstream in 2018. With a retreat in commodity prices, we expect companies to continue to show restraint in how they spend their cash. However, we anticipate that other sources of funding will underpin an increase in M&A activity during 2019.”

Upstream deal value declined from US$164.8b to US$130.3b during 2018, while deal counts declined by 26%. Other factors impacting M&A activity last year included a more disciplined approach to capital deployment, with upstream players focusing on their highest productivity capex-related investments and reducing debt.

Despite expectations of  the transition from oil to gas, this did not seem to translate into gas specific transactions activity; indeed the proportion of these deals declined from 21% to 13% over the course of the year.

Last year marked a five year high for midstream transactions (US$193.1b), representing the largest total deal value (45%) for oil and gas transactions during that period. Corporate simplification and restructuring drove almost 75% ($140b) of the total deal value, as companies restructured and consolidated their affiliates in response to changes in US tax regulations.

Companies also continued their focus on lowering capital costs, increasing capital access and improving balance sheets to position for infrastructure expansion.