A significant drop-off in midstream merger and acquisition (M&A) activity, coupled with lackluster number of mega deals, resulted in a decline in deal values for the third quarter from a year ago, PwC US said Thursday.

Foreign buyers and private equity (PE) players returned to the deals table as energy asset buyers, which drove the bulk of M&A activity in the sector, said the consultant. There was only one foreign transaction in 2Q2013, according to PwC (see Daily GPI,Aug. 7). Divestiture activity in 3Q2013 contributed 36 total transactions, representing 84% of total deal volume, but there was a big decline in midstream M&A activity and a loss of big sales agreements, resulting in deal values falling from 3Q2012.

PwC’s Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with values of more than $50 million using transaction data from IHS Herold.

A total of 43 oil and gas deals with values of more than $50 million were made between July and September, according to PwC. The total transactions accounted for $16.4 billion, a slight decrease from the 45 deals worth $37.6 billion in 3Q2012. On a sequential basis, deal volumes in 3Q2013 fell by 9%, with total values falling by 46%. Divestiture transactions accounted for $13.9 billion in total deal value.

“After a brief pause in the second quarter, foreign buyers and PE players came back to the deal table in the third quarter looking for attractive assets to add to their portfolios,” said PwC’s Doug Meier, U.S. energy sector deals leader. “Divestitures continue to drive deal activity. Acquirers continue to insist on performing broader and deeper diligence in order to get the right deal done at the right price. As a result, we continue to see increased demand for our divestiture services as sellers spend more time performing their own diligence on the assets to be divested before beginning the marketing process.

“While deal value declined, activity remains robust, including in the shale plays and with master limited partnerships (MLPs) and PwC expects that to continue through the remainder of the year.”

Foreign buyers announced nine deals in the latest period, which contributed $2.8 billion (17%) of total values, versus four transactions valued at $4.0 billion during the same period of 2012. On a sequential basis, the number of total deals increased 800% as there was only one foreign deal.

For transactions valued at more than $50 million in 3Q2013, upstream deals accounted for 26 transactions, representing 61% of total deal volume and totaling $11.2 billion. Additionally, four midstream deals accounted for 9% of total deal volume worth a total of $1.3 billion. There also were 10 oilfield services deals worth $3.0 billion; three downstream deals added $886 million.

Shale-related transactions continued to be a major driver for activity in the quarter, with 17 transactions contributing $5.4 billion, or one-third of the values. In the upstream sector, 15 shale transactions accounted for $5.0 billion in total value, while the midstream sector had no shale deal activity.

The most active unconventional plays for transactions worth more than $50 million in 3Q2013 included the Eagle Ford Shale, with seven transactions valued at $1.7 billion total; the Bakken Shale, three deals valued at $1.8 billion total; and the Utica Shale, two deals that had $284 million total value.

Financial investor activity returned in the latest period with six total transactions, representing $4.9 billion, or 30% of total deal values, compared to four deals accounting for $1.5 billion (5%) of total values in 2Q2013.

“Financial investors continue to focus on exploration and production (E&P) opportunities but stepped into three oilfield service transactions in the third quarter,” said PwC’s Rob McCeney, U.S. energy private equity deals leader. “Financial investors also accounted for one mega E&P transaction in the third quarter and continue to seek orphan businesses from corporate sellers.”

In 3Q2013, MLPs were involved in 11 transactions representing one-quarter (26%) of total activity. Overall, MLPs have generated close to one-third (34%) of total activity in the first three quarters of this year. Of those 11 deals, four were upstream MLPs, or 36% of total MLP activity, in 3Q2013.

“MLPs, including those focused on the upstream space, are continuing to have a strong presence in the deal market — and PwC expects this to continue,” said Meier. “MLPs use deals to grow distributions to unit holders, and they’re taking advantage of the attractive debt and equity markets to finance these deals.”