Most global oil and gas companies are poised for dealmaking in 2016, but volatile commodity prices still pose a significant threat, more than 100 senior energy executives said in a recent survey.

The 13th biannual edition of the Ernst & Young (EY) Global Capital Confidence Barometer issued on Thursday reported responses from more than 1,600 senior executives from all industries, including 100-plus from the oil and gas sector. While most industries are pursuing mergers and acquisitions (M&A) at a rate not seen in this decade, dealmaking within the energy sector has been stymied this year by continued uncertainty in the oil and gas markets.

Declining oil and gas M&A activity in the first part of the year resulted in part from a “lack of quality assets on the market,” but things may be about to change, said EY’s Andy Brogen, global oil and gas transactions leader.

Energy companies now are “looking at multiple acquisitions. Fifty-eight percent of executives already have three or more deals in the pipeline compared to just 12% six months ago.”

EY’s view is similar to one held by energy analysts covering the U.S. sector, who last month said the lukewarm market was about to heat up (see Daily GPI, Nov. 30). On Thursday Devon Energy Corp. had no comment about a report that it is readying a cash-and-stock takeover of Denver-based Felix Energy LLC for about $2 billion. Felix, founded in 2013 by EnCap Investments LP, has acreage in Oklahoma adjacent to some of Devon’s holdings.

The EY survey, conducted in August and September, found that deal values in the oil and gas sector through the first nine months of this year were below comparable levels for 2014 and 2013. Taking into account that almost 70% of year-to-date value derives from a single deal, “2015 oil and gas M&A activity seems even more lackluster,” EY said.

“While we did see some optimism for oil and gas dealmaking in the second half of 2015, the midyear retreat of oil prices to January levels put the brakes on M&A activity,” Brogen said. “The resilience of U.S. tight oil and other non-OPEC production in the face of lower prices, combined with OPEC’s decision to maintain production levels, as well as the expectation that additional Iranian crude supply will reach the global market in 2016, have overwhelmed demand.”

In developing economies, notably Asia, demand growth “has fallen short of expectations, and while lower prices have boosted demand in the U.S. and Europe, global demand is still expected to grow at a slower rate. As the oil markets wait for someone to blink, oil price volatility has remained high, challenging M&A activity.”

To survive the plunge in prices, M&A is key, he said. And “there is real optimism going forward” in the energy industry.

“More than two-thirds of oil and gas executives expect to pursue an acquisition during the next 12 months as lower oil prices continue to pressure producers that invested heavily during the last commodity super-cycle,” he said. That’s 10% higher than deal expectations in April’s survey results.

The demand forecast is expected to remain low while supply still is abundant, but many energy executives “are looking to strengthen their companies by focusing on financial, operational and portfolio resilience. M&A will play a major role in determining which companies survive the downturn in prices.”

Of the oil and gas executives who were asked to make forecasts about the next 12 months, 88% expect the market to improve for dealmaking, with 59% planning to complete acquisitions — almost double expectations from last April. About one-third are looking at “upper-middle-market deals” of between $251 million to $1 billion, which is more than double the number of respondents in 2014.

Meanwhile, 93% expect the global economy to improve or remain stable over the next year. Sixty-percent are planning in 2016 to focus primarily on “exploiting technology and increasing research/development to achieve organic growth.”

There are potential barriers to M&A within the energy sector. Witness dealmaking year-to-date, as 83% of the companies in the market “either failed to complete or canceled a planned acquisition in the last year,” Brogen said.

“Competition from other buyers tops the list of challenges facing companies pursuing acquisitions. Concerns about regulatory or antitrust reviews and a widening valuation gap are also influencing executives’ willingness to withdraw from acquisitions.”

EY found a “stronger sense of determination across the oil and gas industry that’s setting the stage for a more active M&A market in the year ahead,” Brogen said. “Executives continue to focus on conserving cash and reining in costs but are considering acquisition opportunities more seriously. Transactions will play a major role in determining who survives the downturn in prices.”