An uptick in U.S. midstream dealmaking lifted acquisition activity between April and June, while upstream transactions fell by half from a year ago, a new report by PwC US said.
As oil and gas operations adapt to lower prices, strategic merger and acquisition (M&A) dealmaking is adapting as well, according to PwC’s Oil & Gas M&A analysis of 2Q2015 activity. The report, issued early Wednesday, reviewed announced U.S. transactions valued at more than $50 million using transaction data supplied by Global Data.
A total of 47 transactions valued at $38.8 billion were announced in 2Q2015, versus 39 valued at $34.5 billion in 1Q2015, and 65 in 2Q2014 worth $48.9 billion (see Daily GPI, May 8). Most of the dealmaking was in the U.S. midstream, driven higher from the first quarter by corporate buyers.
“Interest in the midstream sector drove second quarter deal volume and value as corporate buyers pursued opportunities to grow their gathering and transportation operations as U.S. onshore production continued to increase, despite the ow oil and gas price environment,” said PwC’s Doug Meier, U.S. energy sector deals leader. “Going forward, we’ll see activity continue as businesses realign their strategies to the current oil price realities.”
From a year ago, the number of midstream deals jumped 110%, while values increased 130%. With 21 total transactions, the midstream sector accounted for 44% of activity and contributed $27.7 billion in value. Master limited partnership (MLP) dropdowns and affiliate transactions, which totaled $19.5 billion, generated 38% of the midstream transactions.
During the latest period, total upstream activity slumped year/year by 55% and values declined 67%, with 18 transactions valued at $8.3 billion. Additionally, four oilfield services transactions in the latest period were one-third fewer than a year ago, with values dropping by 40% to $1.6 billion. Downstream dealmaking plunged by 56%, with values down 87% from a year earlier.
The 14 unconventional/shale transactions in 2Q2015 that were valued above $50 million were 46% fewer than a year ago, and total value of the deals also fell 46% to $11.2 billion.
“Buyers in the oil and gas industry continued to be opportunistic in shale formations, as investors focused on specific resources to further enhance their positions in relevant basins,” said PwC partner John Brady, who is based in Houston.
Upstream activity related to shale plays accounted for nine transactions worth $5.5 billion, compared with 21 in 2Q2014 valued at $11.6 billion. Five midstream shale-related transactions were worth $5.7 billion total, the same number of deals from a year ago, but the value of all the deals was down 37%.
The most active onshore play for dealmaking was the Utica Shale, with five announced transactions worth a total of $1.5 billion. The Permian Basin accounted for only one deal in 2Q2015 worth more than $50 million, but it was the highest valued transaction in all onshore plays at $3.9 billion: Noble Energy Inc.’s acquisition of Rosetta Resources Inc. (see Shale Daily,May 11). One big deal also was in the Bakken Shale during 2Q2015, with Hess Corp. receiving $2.68 billion from Global Infrastructure Partners to begin a joint venture to build infrastructure (see Shale Daily, June 11). There also was one deal in the Eagle Ford Shale valued at $1.2 billion, and one in the Marcellus Shale for $197 million.
Corporate deals were the No. 1 avenue for transactions during 2Q2015 with a total of 32 valued at $34.2 billion. Asset transactions accounted for 15 deals for $4.6 billion. Corporate transactions represented 68% of total volume and 88% of values in the latest period, including three midstream deals each valued at more than $1 billion. Overall, five megadeals totaled $25.9 billion, representing 67% of value in 2Q2015.
Financial investors, particularly private equity (PE), scooped up 17 transactions between April and June that together were worth $10.8 billion — a 240% increase in volumes and 39% boost in values from 2Q2014. PE accounted for 13 of the 17 transactions, which together were valued at $3.8 billion.
“Financial investors see opportunities to make investments as companies adjust their portfolios in this dynamic environment,” said PwC’s Rob McCeney, U.S. energy and infrastructure deals partner. “With cash on hand and experienced management teams in place, we expect to see more private equity commitments and deals in the second half of 2015.”
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