Midstream deals drive US oil and gas in Q2 2015

More private equity commitments and deals are expected in the second half of the year, according to PwC US.

In its most recent quarterly analysis of oil and gas deals with a value greater than $50 million, PwC US found that midstream transactions were the central driver of strategic deal-making efforts in the sector for the second quarter of 2015, according to a report.

During the three-month period ending June 30, there were 47 total deals accounting for $38.5 billion, compared with 39 deals worth $34.5 billion in the year's first quarter, and 65 deals worth $48.9 billion in the second quarter of 2014, according to PwC's '2015 Mid-year Energy Deals Update: The two speeds of US Energy M&A'. Corporate deals accounted for the bulk of volume, with 32 corporate deals worth $34.2 billion compared with 15 asset deals worth $4.6 billion.

Q2 results showed growth from the first quarter, which saw 39 deals worth $34.5 billion, though there was some year-over-year slowdown from Q2 2014.

Contributing to the lag was the upstream sector, which saw 18 transactions representing $8.3 billion in total deal activity in the second quarter.  

Midstream deals, however, grew by 110 percent, with 21 midstream deals – 44 percent of total deal activity – contributing $27.7 billion in value to the $38.8 billion in flow generated by 47 total oil and gas sector deals in the quarter.

“Interest in the midstream sector drove second-quarter deal volume and value as corporate buyers pursued opportunities to grow their gathering and transportation operations as US onshore production continued to increase despite the low oil and gas price environment,” said Doug Meier, PwC's US energy sector deals leader. “Going forward, we'll see activity continue as businesses realign their strategies to the current oil price realities.”

Master limited partnership (MLP) drop-downs and affiliate transactions accounted for 38 percent of midstream transactions, totaling $19.5 billion in Q2 deal activity. Financial investors generated $10.8 billion in deal flow through 17 deals in the oil and gas sector.

“Financial investors see opportunities to make investments as companies adjust their portfolios in this dynamic environment,” said Rob McCeney, PwC US energy and infrastructure deals partner. “With cash on hand and experienced management teams in place, we expect to see more private equity commitments and deals in the second half of 2015.”

Midstream shale-related deal volume remained flat with five deals in both Q2 2014 and Q2 2015, though there was a 37 percent value drop year-over-year at $5.7 billion. Shale play-related deals across the sector accounted for 14 transactions totaling $11.2 billion, representing a 46 percent decrease in both deal value and volume compared with Q2 2014.

The most active shale play for mergers and acquisitions (M&A) with values greater than $50 million during Q2 was Utica, which led activity with five deals worth $1.5 billion. The Bakken, Eagle Ford and Marcellus shale formations each contributed two deals worth $2.9 billion, $1.2 billion, and $197 million, respectively, with the Permian leading in overall deal value with one deal worth over $3.9 billion.