Last year was the slowest in eight years for dealmaking in the U.S. natural gas and oil patch, and tepid sales activity continued through the first quarter, according to researchers.

Mergers and acquisitions (M&A) activity in the domestic energy industry held steady between January and March, while the values were down year/year, according to the latest compilation by PwC US. Continued low oil prices shut down access to the capital markets and pressured valuations, slowing the potential for a robust M&A market. The analysis, done quarterly, is of announced U.S. transactions valued above $50 million using transaction data from Global Data.

During the first three months of 2016, PwC said 39 deals were announced, which together accounted for $28 billion, versus a year ago when there also were 39 deals, but together they were valued at $34.4 billion — a 19% decline. Overall, three megadeals, i.e., more than $1 billion in value, came in at $18.6 billion, representing 66% of all the transactions.

“As cash flow for oil and gas companies remains constrained, stress around leveraged assets and over extended balance sheets remain the top concerns for many oil and gas companies,” said PwC’s Doug Meier, U.S. oil and gas sector deals leader. “We are in a bifurcated market where companies that have adapted to the lower for longer environment by undertaking a ‘leaner for longer’ strategic approach have lower leverage, more cash and portfolios structured for a sustained lower commodity price environment.

“These companies are better-positioned for a market recovery and are developing M&A strategies geared toward a future market recovery. Valuation gaps between prospective buyers and sellers continue to hinder deal announcements.”

Fifteen unconventional play transactions were done between January and March that totaled $5.6 billion, a 5% increase in volume and 67% higher in value than in the year-ago period.

“Activity in the upstream sector related to shale plays increased to 13 transactions and accounted for $3.5 billion, or 68% of total upstream deal volume and 39% of the total upstream deal value in the first quarter of 2016,” PwC said. Two midstream shale-related deals also were announced that accounted for $2 billion, down 56% in value from a year ago.

The most active unconventional plays during 1Q2016 — with sales valued at more than $50 million — were the Permian Basin and the Eagle Ford Shale. Three deals were announced in each play, worth $341 million in the Permian and $1 billion in the Eagle Ford.

Two deals each also were generated in Colorado’s Niobrara formation, Haynesville and Marcellus shales, with the Niobrara leading in overall value at $2.1 billion total. The Fayetteville, Utica, and the Bakken shales saw no activity in the quarter.

The biggest onshore deal was done in February by WPX Energy Inc., which sold its Niobrara assets in the Piceance Basin for $910 million to private equity-backed Terra Energy Partners LLC (see Shale Daily, Feb. 9).

The second largest was by EP Energy Corp., which sold its Haynesville and Bossier properties to Covey Park Gas LLC for $420 million (see Shale Daily, March 21).

During 1Q2016 from a year ago:

Constrained cash flow, high leverage and pending maturities, along with technical defaults, “have forced many oil and gas companies to engage in discussions with their creditor constituencies ahead of such maturities and defaults,” said PwC’s John Bittner, a business recovery services deals partner.

“While the pace of bankruptcy filings witnessed in December 2015 did not seem to continue during the first three months of 2016, many companies continued to prepare for restructurings by negotiating with creditor groups in hopes of decreasing leverage and debt service burden and/or covenant relief.”

Financial investors accounted for a only 10 transactions, with values down by half year/year and off 48% from the fourth quarter. Private equity (PE) commitments accounted for nine of the 10 deals worth $1.9 billion, with five transactions in the upstream space accounting for nearly all at $1.1 billion.

“Turbulent financing markets put a damper on PE enthusiasm, and the focus remains on committing equity rather than pure acquisitions,” said PwC’s Rob McCeney, U.S. energy and infrastructure deals partner. “Lack of financing and the number of debt obligations coming due in the next six months could increase the number of distressed businesses and as a result, opportunities for financial investors.”

Equity access and debt financing markets remain constrained, with the energy sector shut out of initial public offerings and high-yield debt markets between January and March, said PwC’s Joe Dunleavy, an advisory partner in capital markets. Issued follow-on equity fell by 43%, while there was 54% less investment-grade debt issued from a year ago. Equity values fell by one-third year/year, while investment-grade debt values slumped 42%.

Twenty-four corporate deals worth $25 billion were completed in the first three months, versus 15 asset sales worth $3.1 billion. Corporate transactions represented close to two-thirds (62%) of total volume and 89% of total value.

“Commodity prices continue to create disruption in the marketplace, with companies taking impairments and cutting costs to the bone,” PwC’s Seenu Akunuri said. The U.S. oil and gas valuation practice leader said that in addition to tightening their budgets and capital investments, “there is reluctance to close an M&A transaction unless it will have an immediately accretive impact to the bottom line while retaining leverage at manageable levels.”

Consistent with a historic trend, domestic transactions dominated activity, generating 97% of value, or $27.1 billion, and 87% of the number of deals, or 34 domestic deals. Foreign buyers announced only one transaction, which accounted for $190 million in value, a 75% decrease in volume and an 86% decline in value year/year. Four undisclosed global deals also totaled $760 million.

According to 1Derrick, last year was the slowest for the U.S. upstream M&A market since 2008. Domestic deals announced last year were on the market for “a significant time,” with close to one-third of the packages marketed for more than a year, and half on the market for three to 12 months before a transaction was announced.

“At the end of 1Q2016, only 17% of the assets were sold within three months of being announced,” including WPX’s Piceance assets, 1Derrick said. About 58% of the packages on the market at the end of the first quarter “were announced more than a year ago.”

Among the “significant packages” of property sales announced in 2014 but not closed last year were Reliance Industries Ltd.’s Eagle Ford assets and Total SA’s 17% interest in the Gulf of Mexico Tahiti field. 1Derrick said that dealmaking last month “slowed down even further, almost to the subprime crisis levels” of early 2009.