Oil and natural gas merger and acquisition (M&A) transaction values in the United States hit a 10-year high in the third quarter, with the midstream sector contributing the big deals, according to PwC US.
The strong midstream activity, sustained interest from foreign buyers in unconventionals and the overall impact of mega-transactions valued at more than $1 million contributed to record-breaking deal activity, the advisory service said. Only transactions valued at more than $50 million were tracked. The quarterly analysis uses transaction data from IHS Herold.
Between July and September, 78 transactions brought in $123 billion, an 81% growth in total volume and a 649% surge in total deal value from 3Q2013, when 43 deals totaled $16.4 billion, Sequentially, volumes increased by 20% and values were up by 152%. Fourteen mega-deals totaled $103.5 billion, or 84% of total value, including eight corporate transactions.
"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," said PwC's Doug Meier, U.S. energy sector deals leader.
"This extraordinary deal activity occurred while commodity prices declined sharply during the quarter -- a trend that accelerated in the first half of October. 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."
Overall, 15 midstream deals contributed $74.1 billion, including three valued at more than $8 billion, which amounted to a sequential increase of 50% in volume and 517% in year/year value. Forty-two upstream transactions totaling $29.4 billion accounted for more than half (54%) of all activity. Downstream deals remained the same year/year at nine, while total deal value decreased 10%. Oilfield services deals increased to 12, or 100%, with total values sequentially rising 313%.
Foreign buyers snapped up 17 acquisitions in the latest period for a total of $22.1 billion, up from nine deals in the year-ago period that were worth $2.8 billion. It was the most foreign activity in five years. On a sequential basis, the foreign activity volumes were 70% higher, the total value rose by 103%.
Unconventional land still is a big draw, with 36 deals in 3Q2014 representing $26.6 billion in total value -- 46% higher volume-wise and 22% more in total value from a year ago. In the upstream sector, there were 28 unconventional land deals totaling $23.1 billion, or 79% of total upstream deal value. Five midstream unconventional-related deals also were tallied, accounting for a total of $2.5 billion. That compares with zero deals in the year-ago period.
"The third quarter saw the highest number and value of shale deals in any third quarter over the last three years," said PwC's John Brady, a Houston-based partner with the energy practice. "This increased interest was driven primarily by the continued activity in the upstream space. However, a challenge exploration and production (E&P) companies are facing is bridging the resource and organizational gaps in land administration and operations following acquisitions. We're working with many companies to help capture more value from land organizations."
The most active unconventional play tracked by PwC was the Eagle Ford Shale, where seven deals totaled $1.8 billion. The Bakken Shale followed with six representing $8.6 billion, and the Permian Basin accounted for five transactions valued at $7.8 billion. The Niobrara formation drew three deals worth $2.4 billion. The Marcellus Shale had four deals valued at a total of $1.1 billion, while the Utica Shale generated two deals, and the Haynesville and Fayetteville shales generated one each.
Corporate transactions led total deal values in 3Q2014 at $99.1 billion or 81%. The 20 transactions were the highest level since the last three months of 2012, PwC noted. Asset transaction volumes during 3Q2014 totaled 58 deals, 74% of volumes, while total value reached $24 billion, or 20% of values for the quarter.
During the latest period, master limited partnerships were involved in 14 transactions, about 18% of the activity and consistent with historical levels. Financial investors also continued to show their interest in the sector with six transactions accounting for $4 billion, about the same in total number of deals but a slight drop a in total value from a year ago.
"While financial investor M&A activity remains modest compared to corporate transactions, they remain very active backing management teams with equity lines of credit in E&P and midstream," said PwC's Rob McCeney, U.S. energy and infrastructure deals partner. "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."