Oil and Gas M&A muted amid weak prices: Deloitte

OREANDA-NEWS. August 12, 2016.  Mergers and acquisitions in the global oil and gas industry remain muted as buyers hold out for a more concrete improvement in crude prices, said consultancy Deloitte.

M&A activity picked up in the second quarter as crude prices recovered from a low of \\$26/bl in February to just over \\$50/bl. Companies such as Devon Energy beat its target for non-core asset sales for the year during that time while others, such as Marathon Oil, Pioneer and SM Energy, picked up properties.

A more recent dip in prices by about 20pc may dampen expectations of a sustained improvement in the market, likely capping any steady step up in deal making.

"M&A activity continued to be hampered across all four sectors of the oil and gas industry to levels not seen since the last Great Recession," Deloitte said in a report released today, referring to upstream, oilfield services, midstream and downstream sectors.

The total oil and gas deal count was 198 in the first half of the year compared with 199 a year earlier and 387 in the first half of 2014. But total deal value fell to \\$85.7bn in the first six months of the year compared with \\$158.6bn a year earlier and \\$141bn in 2014.

The upstream sector witnessed a slight uptick in the number of deals but a decline in total value compared to the first half of each of the previous five years, Deloitte said, although Shell's \\$70bn purchase of BG last year skewed the numbers. Excluding that one deal, total deal value would have almost doubled in the first half of 2016 from a year earlier.

Of deals this year, US deals made up 45pc of the total, Canada represents 21pc and Europe 7pc. Asia, Russia, South and Central America made up the remaining 26pc. Based on deals where the basins were identified, the Permian in Texas had the most, at 16, followed by seven in the Marcellus, five in the SCOOP and STACK areas of Oklahoma, with another five in the Bakken in North Dakota. The Eagle Ford, also in Texas, had four.

"Producers' renewed interest in the Permian basin stems from its favorable characteristics relative to other unconventional oil basins," it said. "Its unique stacked play geology lends itself to high efficiency gains and well productivity."

The oilfield services sector has been particularly hard hit by the oil price downturn, as "this sector is most directly and immediately impacted by the cutbacks in activity by producers and the subsequent loss of demand for equipment, oilfield crew and supporting services," Deloitte said.

In the oilfield services sector deal count and deal value was in line with the midstream and downstream sectors, with only 21 transactions in the first half of 2016 for a total deal value of \\$16.8bn. But deal value for oil field services would have been much lower if the \\$14.5bn announced merger of Technip and FMC Technologies were excluded.