PwC: Oil Price Stability Drives Uptick in M&A Deals

The stabilization of commodity prices and cautious optimism over an oil and gas industry recovery triggered a rise during the second quarter in the number of merger and acquisition (M&A) deals valued at more than $50 million, PwC reported in a second quarter analysis.

This stabilization should continue to drive transactions in the E&P space during the second half of 2016. But better cash flow and the return of the capital markets will be needed before more megadeals return, Doug Meier, U.S. Oil & Gas Sector Deals Leader at PwC, told Rigzone.

Only two megadeals valued at more than $1 billion were announced in the second quarter. These deals, worth $10.9 billion, represented 42 percent of total deal value. These transactions include Range Resources Corp.’s planned acquisition of Memorial Resource Development Corp. and FMC Technologies plan to merge with Technip SA.

The number of M&A deals in the second quarter reached 51, 31 percent higher than first quarter 2016 and nine percent higher than deal volume in second quarter 2015. The value of M&A deals done, $26.1 billion, was down seven percent from this year’s first quarter and 33 percent from second quarter 2015, the report showed.

“We need the animal spirits to return,” said Meier. “While we feel we’re at the early stages of a recovery now, it may take more time for companies to feel more confident” that there is a recovery and what the recovery will look like.

Thirty-five of 51 announced deals involved smaller deals involving the upstream sector, according to the analysis. The 35 deals were valued at $15.3 billion.

Fourteen of the 35 E&P deals were companies looking to divest non-core assets, Meier. Companies buying these assets were looking to add acreage to their core sweet spots.

Twenty-seven of these upstream deals were asset deals; 23 of these deals involved shale assets. Shale-related transactions primarily involved Permian Basin and Marcellus shale assets, Meier said

“This interest is consistent with recent history,” Meier commented.

M&A activity has been primarily focused on the Permian, Marcellus and the Eagle Ford. Meanwhile, M&A activity in the Bakken play has really fallen off over the past year. The economics of the Permian and Marcellus have made them attractive M&A targets, with sweet spots in both plays continuing to surprise producers and exceed expectations, Meier stated.

Karen Boman has more than 10 years of experience covering the upstream oil and gas sector. Email Karen at kboman@rigzone.com

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