Mergers and acquisitions (M&A) in the oil and gas industry reached record-breaking deal activity in the third quarter, while deal value hit a 10-year high in large part due to megadeals of $1 billion or more in the midstream sector, PwC said in its latest Oil and Gas M&A analysis.
A total of 78 oil and gas deals, with values greater than $50 million and totaling $123 billion represented an 81 percent jump in deal volume and a 649 percent spike in deal value compared with the 43 deals worth $16.4 billion realised in the same period last year.
On a sequential basis, the increase was more modest though still significant, with deal volume up by 20 percent from 65 deals in the second quarter and deal value increasing 152 percent from $48.9 billion, PwC said.
Fifteen midstream deals, three of which were valued at more than $8 billion each, contributed $74.1 billion to the overall total. Upstream deals accounted for 54 percent of total deal activity with 42 transactions representing $29.4 billion, while downstream deal volume remained flat at nine transactions and deal value dipped 10 percent to $8.4 billion from $9.3 billion in the second quarter of 2014.
“This was a break-out quarter for deal activity, as third quarter deal value reached a 10-year-high value due to a number of drivers coming together to bolster M&A flow, including the significant impact of $1 billion-plus deals, foreign and private equity interest and the attractiveness of shale plays,” PwC US energy sector deals leader Doug Meier said.
“If we continue to see a sustained lower crude pricing environment, we will likely witness an acceleration of the portfolio restructuring efforts we’ve been seeing in the past couple of quarters as companies focus on the importance of financial discipline,” he added.
The attractiveness of shale was evident with the highest number and value of shale deals recorded in any third quarter over the last three years, John Brady, a Houston-based partner with PwC’s energy practice, said.
Financial investors’ contribution to third quarter deal activity remained modest, PwC said, backing six transactions worth $4 billion, while corporate transactions were responsible for most of the deal value with 20 transactions accounting for $99.1 billion of the $123 billion total.
Still, financial investors “remain very active backing management teams with equity lines of credit in E&P [exploration and production] and midstream,” PwC US energy and infrastructure deals partner Rob McCeney said.
“Once these management teams execute greenfield or brownfield transactions, their businesses become fully operational and they can execute on deals, which contributes to the ongoing corporate deal activity,” he noted.