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Analysis

Oil & Gas Mergers and Acquisitions report—Midyear 2017

Overcoming the headwinds 

Global oil and gas (O&G) mergers and acquisitions (M&A) were on the upswing during the first half of 2017. Do the trends driving increased M&A activity signal a sustained global oil and gas market recovery? What factors should the industry watch in the second half of the year to assess the strength of the recovery?

Overcoming the headwinds

Global oil and gas mergers and acquisitions across all sectors topped $135 billion in the first half of 2017 compared to $87 billion in the same period of 2016. For this midyear update, we focus on what we consider to be the three most significant trends driving oil and gas M&A activity:

  • Asset-based deals aimed to refocus and reinforce portfolio positions to form a stronger platform from which to prosper in the expected O&G market recovery. Buyers and sellers adjusted their upstream portfolios to achieve scale in existing core areas or to reduce positions in noncore assets. Asset-based transactions accounted for around $67 billion, or 72 percent, of total upstream oil and gas mergers and acquisitions in the first half of 2017. Asset-based M&A totaled around $89 billion in the first half of 2017. This trend was particularly prevalent in North America, with the Permian Basin standing out by attracting deals totaling around $20 billion.
  • Realignment of holdings in the Canadian oil sands, with the exit of some international majors, concentrating more of this play in the hands of focused Canadian operators. Oil and gas mergers and acquisitions in oil sands accounted for 26 percent of the approximately $92 billion in overall upstream M&A in the first half of 2017, with two mammoth deals in the Canadian oil sands. The biggest was Cenovus’ acquisition of oil sands and deep basin gas assets from ConocoPhillips for $13.3 billion. The deal provided strategic advantage to Cenovus as the acquisition would not only double its reserves but also give it the potential to raise production to 588,000 barrels of oil equivalent per day.
  • Transactions aimed to secure improved access to downstream refined products markets for major producing national oil companies (NOCs) at a time when crude oil production cut agreements temporarily limit crude oil trade for some countries. In an effort to grow internationally, NOCs are expanding downstream positions in consuming countries to enhance market access. This trend began to emerge in 2016 and picked up speed in 2017. Some examples include Rosneft’s $12.9 billion deal to acquire a 49 percent stake in Essar’s refinery at Vadinar in India to pursue its global expansion; a deal, announced in 2016 and concluded in May 2017, between Shell and Saudi Aramco to split the assets of US joint-venture refining and marketing company, Motiva; and the $7 billion deal between Saudi Aramco and Petronas—the largest in the downstream sector in the first half of 2017.

The report explores three additional factors that could either fuel a faster recovery or create uncertainty in the market in the second half of 2017.

  • O&G commodity pricing: There was an oil price recovery following the initial OPEC/non-OPEC production cuts agreement that created a broadly shared expectation of oil market rebalancing. However, the price retreat of June 2017 that followed the renewal of the OPEC/non-OPEC production cuts for a further nine months led to more uncertainty, which may give pause to deal flows in the months to come. Much will depend on the pace and extent to which global crude oil inventories begin to fall to historic levels over the balance of 2017 and into 2018.
  • Macroeconomic outlook: If the slow pace of recovery in the global economy translates into lower oil demand growth than expected, it will contribute to heightened uncertainty and risk for the O&G industry. On a seasonal basis, oil demand is usually stronger in the second half of the year, but it is unclear whether demand growth can make enough of an impact on market rebalancing. This additional uncertainty could weigh on the prospects for transactions across the O&G value chain.
  • Financing conditions: While interest rates are still very low compared to historic levels, they are beginning to edge up, perhaps constraining deal finance at the margin. Private equity investors still retain an active stance toward the O&G industry, and we expect them to continue to seek opportunities in core plays with robust economics in a market recovery. The upstream companies that still need to de-leverage, however, will likely still find it challenging to bring second-or third-tier assets to market, particularly if market uncertainty remains prevalent.

After considering all these factors, the O&G markets seem to be in a cautious recovery mode, possibly leading to a slight pause in M&A activity in the second half of 2017 following a revival of transaction activity in the industry in late 2016 and early 2017. Download the report to learn more.

View past Oil & Gas Mergers and Acquisitions reports

Yearend 2016: Out of the starting blocks

Price downturns and bankruptcies in 2016 didn’t impact the oil and gas industry as much as predicted. In fact, M&A deal value recovered to exceed 2014 and 2015 levels. With prices recovering, what is the outlook for 2017? Read our trends and predictions for oil and gas M&A and discover how your business will be impacted.

Midyear 2016: Looking for a restart

The report covers the first half of 2016 deal activity for each sector of the oil and gas industry, examining overarching trends and highlighting individual deals for discussion. Understanding the strategies behind energy sector M&A participants will give some insight as to what to expect for the rest of 2016 and beyond.

Yearend 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?

Midyear 2015: Adjusting to the new reality

For the oil and gas industry, the M&A deal market recovered somewhat in the second quarter of 2015, both in terms of number of transactions and overall value relative to the first quarter, due in part to the announcement of one large international deal.

Yearend 2014: A world in flux

For the oil and gas industry, the M&A deal market in 2014 started stronger than 2013 and with a total year-end deal value of about $350 billion, surpassed 2013 by $130 billion. By July 2014, however, deal making began to slow before plummeting late in the year along with global oil prices.

Yearend 2013: The deal market quiets down

For the oil and gas industry, 2013 was a year to focus on the development of resources. There was a drop in merger and acquisition deal values from $349 billion in 2012 to $205 billion in 2013, or 41 percent. Many producers focused on developing properties they acquired in previous years, streamlining operations, and maximizing the return on assets held. The industry completed 119 fewer deals in 2013 than in the previous year.

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