Oil And Gas M&A Lows And Highs In 2015

Thanks to volatile oil prices leading to wide bid-ask spreads in the upstream space, the overall deal count in Oil and Gas M&A is on pace for a 40% annual decline to about 900 deals, the lowest level in at least 10 years, notes research firm CreditSights. However, there are some bright points especially in terms of dollar amounts.

Brian M. Gibbons and team at CreditSights in their report titled: “Oil & Gas M&A: Dollar Volume Hides Low Activity” reckon an uptick in the M&A activity could be delayed until 2016.

Global M&A deal activity down in 3Q15

Gibbons et al. point out that global M&A deal activity looks to be back on the decline in 3Q15 following a modest uptick in deals during 2Q15. They note there have been 190 deals announced QTD, as against 266 in 2Q15 and 410 deals in the year-ago quarter.

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Sounding a cautionary tone, Gibbons and team believe unless there is a major uptick in activity over the next couple of weeks, 3Q15 will mark the lowest quarterly deal account going back to at least 1Q05.

Tracking the deal data on YTD basis, they note deal activity has been muted most of the year with only 707 deals announced YTD, compared to 1,196 deals during the comparable period last year, and marking the lowest level for the period going back to at least 2005. However, despite low overall activity, dollar volume of global Oil and Gas M&A is at a 10-year high of $336 billion YTD owing to a few mega deals, including to Energy Transfer's $71 billion planned acquisition of Williams, Shell's $82 billion pending acquisition of BG Group and SK Group's full consolidation of SK Holdings for $25 billion.

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The following table captures the top 10 largest global Oil and Gas M&A deals YTD, which at $253 billion accounted for 75% of the total U.S. dollar value of all activity:

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Pipeline and midstream companies preferred targets for M&A

Gibbons and team point out that the main targets of global Oil and Gas M&A have been pipelines and midstream companies, followed by E&Ps and integrated. In terms of acquirers, the pipelines and midstream companies lead the way at $126 billion, closely followed by the integrated and E&Ps at $117 billion:

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The CreditSights analysts point out that they had anticipated M&A activity to pick up in 2H15 based on their expectation for oil price stability over the back half of the year. However, painting a cautionary forecast, the analysts now anticipate the uptick in activity will be delayed until 2016. They believe in the current environment, acquirers are shy about pulling the trigger when faced with potentially lower future prices and sellers are shy to hit the bid when looking at potentially higher future prices.