Second-quarter value for US oil and gas mergers and acquisitions was about half of the record-setting first-quarter value, according to PwC LLP's latest energy deals report. But the $37.01 billion from 50 announced deals was the third-highest second-quarter value of the past 8 years.
First-half deal value totaled $110 billion, representing the strongest start to a year in the past 8 years (OGJ Online, Apr. 20, 2017). Additionally, deal value over the last four quarters, which totaled $258 billion, was surpassed only by 2014 deal value.
Consistent with historic trends, the upstream sector led in the second quarter with 29 deals, accounting for 58% of the total deals volume, worth $19.98 billion.
"Upstream M&A also set a record for both the first half of year as well as for any consecutive 6-month period," commented Doug Meier, PwC US oil and gas sector deals leader. "Megadeals dominated deal activity, representing 78% of first-half deal value. Impressively, 14 of the 20 megadeals were all-cash deals, reflecting acquirers' access to cash and their willingness to spend it."
Nine megadeals were announced in the second quarter valued at $24.11 billion. Financial sponsor volume as a percentage of total deal volume in the second quarter was higher both sequentially and on a year-over-year basis. There were 15 financial sponsors deals announced, of which 5 were purchases and 6 were equity commitments.
"Despite the recent sub-$50 oil prices, investors are doing deals with a focus on the long-term economics of the assets and businesses," said Seenu Akunuri, PwC US oil and gas valuation practice leader. "The expectations revolve around the fact that breakeven costs will likely continue to be lower for longer and hence a price point around $50 does not seem to be a deterrent to getting a deal done. In addition, US producers had taken advantage of earlier price points above $50 to hedge some of their production."
Shale in the second quarter accounted for 21 deals worth $17.13 billion, a 124% year-over-year increase in deal value. The Permian remained the most active shale basin in the second quarter with 11 deals valued at $4.49 billion, lower sequentially but still up 118% year-over-year.
PwC reported a big rise in activity in low-cost gas basins, particularly in the Marcellus, where four deals took placed totaling $10.22 billion, including the quarter's largest deal, EQT Corp.'s acquisition of Rice Energy Inc. (OGJ, June 26, 2017, p. 24).
In the midstream segment, 13 second-quarter deals were reported valued at $9.42 billion. Compared with the first quarter, volume was down 7%. Six of the midstream deals worth $4.37 billion were affiliated transactions.
Downstream activity during the second quarter was the strongest since second-quarter 2014 as four deals, two of which were megadeals, took place valued at $5.68 billion, a 490% jump in value from the first quarter.
Oil field services activity remained subdued with 4 deals totaling $1.94 billion.
"As we look to the second half of the year, it will likely be difficult to surpass the results of the first half," the report said. "Several factors, however, point to continuing support for oil and gas deal making. The reshuffling of E&P portfolios continues as companies raise cash by divesting noncore assets and, in many cases, redeploy the cash into investments in core basins.
"Private equity, through its portfolio companies and equity commitments, has increasingly supported E&P deal activity. Look for that to continue-there is significant dry powder to be invested. As the IPO market has slowed, [private equity] will likely increasingly look to trade sales as a mechanism to monetize investments, especially in the oil field services sector," the report indicated.
