- Deal value increased 23% in 2018, while deal volume fell by 18%
- Midstream deal value increased 128% year-on-year to reach $193.1b
- Oilfield services deals decreased to $21b in 2018, a 11% decline over 2017
Global oil and gas total deal value increased by US$ 79.7b during 2018 to reach US$426.8b, despite a decrease of 18% in deal volume. This is according to the EY Global oil and gas transaction review 2018, which also reveals 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.
Andy Brogan, EY Global Oil & Gas Strategy and Transactions 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. 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.
Downstream activity in 2018 was at historically high levels. Deal values reached US$82.5b (up 11% from 2017), while deal volume reached 172 (also up 11% from 2017). Consistent with activity in more recent years, North America and Europe continued to be the most active regions, representing 88% of deal value and 69% of deal volume.
In 2018, the oilfield services (OFS) sector saw 218 deals announced globally, down 7% from 234 in 2017. OFS deal value (US$21b) was down 11% from US$24b in 2017, owing to the limited number of large transactions above US$1b (just three in 2018) and a continued lack of transformational deals (above US$10b). Looking back, 2013 and 2014 were the strongest years for OFS M&A activity in recent memory, followed by lows during 2015 and 2016, and 2017-2018 showing a slight recovery. The report indicates that the sector can expect further growth in 2019 and 2020.
Brogan says: “The continuing lack of blockbuster deals in 2017 and 2018 highlights the industry’s sense of caution in the post-downturn era. Notwithstanding the retreat in oil prices, the market seems to have confidence in the prospects for upstream assets. Midstream corporate simplification is now complete, which will result in midstream transaction value and volume cooling off in 2019, as the market goes back to classical deal drivers. Downstream, the driving force will be a continued expectation that petrochemicals will be an important source of new demand, and that marine bunker fuel requirements will put increasing pressure on the refining sector. New capital will be required and, inevitably, that means transactions.”
Notes to Editors
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