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Oil & Gas Mergers and Acquisitions Report – Year-end 2015
Waiting for a rebound
The decline in commodity prices has affected all sectors of the oil and gas industry, and mergers and acquisitions (M&A) activity has hit the lowest levels in years. There was a rise and fall during 2015, but expectations for an uptick on deals did not come to fruition. What can this mean for the oil and gas industry in 2016?
- Read the report
- An uncertain market
- Three factors that could influence the level of M&A
- Upstream deals
- Oilfield services deals
2015 Oil & Gas Mergers and Acquisitions Report
A new report by Deloitte delves into the world of oil and gas mergers and acquisitions to summarize key takeaways from 2015 and provide a guide for possibilities in 2016. Discover a comprehensive overview of 2015 deal activity within the oil and gas industry, examine the market environment in 2015, and learn insights about what to watch for in 2016.
An uncertain market
The 2015 M&A report is written in the context of an 18-month-long oil price collapse that has led to increased uncertainty for upstream oil and gas producers, as well as the oilfield services and midstream sectors. In contrast, the downstream sector has benefited from widening refining margins, as feedstock prices fell rapidly while refined product prices declined at a slower pace.
Due to crude oil supply growth outpacing demand growth globally, many oilfield services companies cut manpower, mothballed equipment, and began the process of rationalizing their geographical positions and service line portfolios.
By the first half of 2015, many upstream producers followed suit with cash conservation measures and accelerated cost reductions involving a combination of manpower layoffs, renegotiation or cancellation of service and supply contracts, and deferral of discretionary capital projects. Excess oil production, particularly in the United States, was the most dominant factor affecting oil prices in 2015.
Three factors that could influence the level of M&A
In the Deloitte oil and gas mergers and acquisitions report – Year-end 2014: A world in flux, three factors that could resurge oil and gas M&A were noted:
- The potential for recovery in oil prices
- The availability of capital
- Policy, tax, and regulatory changes
Read Deloitte Oil & Gas Mergers and Acquisitions Report – 2015 Update: Adjusting to the new reality to discover the effects these factors had in 2015.
M&A activity in the upstream market for the entirety of 2015 was lower in terms of deal count and value than in any year since 2012. Distressed companies were, for the most part, able to avoid selling assets or being acquired by other companies. The heightened uncertainty and depressed confidence among market participants led to conditions that inhibited transaction flow.
Oilfield services deals
Because of the inability to hedge commodities, the oilfield services sector was hit harder in the pricing downturn than the upstream sector. Revenues for many oilfield services companies plunged as producers negotiated price concessions, cancelled contracts, and reduced near-term exploration and production activities. The oilfield services sector primarily focused on restructuring, reducing capacity, and reviewing portfolio coverage, with the immediate emphasis on reducing manpower and equipment.
The midstream sector, which includes oil and gas pipelines, processing plants, liquefied natural gas (LNG) facilities, and bulk storage terminals, delivered a deal count roughly equal, if not slightly above 2014. This buoyancy in transaction activity was in contrast to the significant decreases seen in the upstream and oilfield services sectors and reflected the different drivers present for the midstream sector. There are three proposed reasons for this, highlighted in more detail in our report.
The downstream sector is a varied market segment that not only includes refining of crude oil but also oil product terminals, marketing, distribution, and retail operations. In 2015, downstream transaction volume was fairly consistent with 2014, if not slightly lower in dollar value. The geographical spread of downstream transactions across the globe was notably more diversified than it was in the other sectors, with deals taking place in every major region.