Despite an ample supply of oil and gas assets on the market due to low oil prices, the overall merger and acquisition (M&A) deal count in the upstream energy sector plunged in 2015 as the weakness and volatility in oil prices made it difficult for buyers and sellers to achieve consensus on value and outlook.
These findings come from new analysis by IHS, the leading global source of critical information and insight.
Despite the boost from Shell’s $85 billion agreement to take over BG Group, total transaction value for global upstream oil and gas M&A deals in 2015 declined 22 per cent to $143 billion from $184 billion in 2014, when transaction value rose 30 per cent year-over-year. In 2015, several large, unsolicited corporate takeover bids were rejected and asset deal value fell to a 10-year low.
“Unstable oil prices caused outlook uncertainty in 2015, and this lack of stability, a key ingredient for buyers and sellers to reach consensus, caused fewer deals to be reached,” said Christopher Sheehan, director of energy M&A research at IHS, and lead author of the IHS Energy Global Upstream M & A Review. “There continues to be a wide disconnect between potential acquirers and sellers regarding valuations of the huge supply of assets on the market that vary in quality. At the same time, corporate takeover targets that suffered severe share price declines are reluctant to sell at modest current premiums in a weak market.”
“During 2015, traditional funding avenues remained generally available for E&Ps, lessening the pressure to consolidate,” Sheehan said. “However, we believe the likelihood for wider consolidation in the oil and gas industry will increase in 2016 as producers face further financial pain and will have more constrained financing options due to persistently weak oil prices.”
The softness in deal activity during the final two months of 2014 carried over into early 2015, the IHS report noted, and while oil prices and deal flow briefly rebounded in the spring, volatile and declining crude prices during the remainder of 2015 kept many potential buyers and sellers on the sidelines.
According to IHS Energy M&A research, worldwide deal count (which includes both asset deals and corporate deals) fell by nearly 50 per cent in 2015 to the lowest level since 2001.
Asset deals represented 80 per cent of total deals, but the number of both worldwide asset and corporate transactions fell steeply. Corporate deal count plunged to a 20-year low, IHS noted.
A significant development in 2015 was the emergence of more than $60 billion in unsolicited corporate takeover bids by larger, financially-stable companies that targeted more distressed peers.
