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2016-04-21 13:45:00

U.S. M&A DOWN 19%

U.S. M&A DOWN 19%

Merger and acquisition activity in the US oil and gas industry held steady while deal values were down during this year's first quarter compared with first-quarter 2015, according to the latest analysis by PwC US.

The professional services firm attributes the light activity to low lingering oil prices shutting access to capital markets and pressured valuations. The quarterly report covers deals with values greater than $50 million.

During this year's first 3 months, 39 announced oil and gas deals took place accounting for a total $28 billion vs. 39 deals worth $34.4 billion in first-quarter 2015. Total deal value was down 19%.

Three megadeals took place worth a total $18.6 billion, representing 66% of total value. Of the megadeals, two were in the midstream space, with TransCanada Corp.'s $13-billion acquisition of Colombia Pipeline Group Inc. representing the largest of the quarter.

PwC notes that consistent with the historic trend, domestic deals dominated activity, generating 97% of the value at $27.1 billion and 87% of the number of deals with 34.

Foreign buyers announced one deal at $190 million, a 75% decrease in volume and an 86% decrease in value year-over-year. There were four undisclosed global deals totaling $760 million.

'Bifurcated market'

"As cash flow for oil and gas companies remains constrained, stress around leveraged assets and overextended balance sheets remain the top concerns for many oil and gas companies," elaborated Doug Meier, PwC US'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," Meier said.

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

John Bittner, a Dallas-based business recovery services deals partner, explained, "The constrained cash flows, excessive leverage and pending maturities, and technical defaults have forced many oil and gas companies to engage in discussions with their creditor constituencies ahead of such maturities and defaults.

"While the pace of bankruptcy filings witnessed in December 2015 did not seem to continue during the first 3 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," Bittner said.

Private equity constrained

Financial investors accounted for just 10 deals, down 50% in total value year-over-year and 48% from the fourth-quarter 2015 number. Equity commitments from private investors accounted for nine of the 10 financial deals worth $1.9 billion in the quarter, with five in the upstream space accounting for $1.1 billion.

"Continued commodity price volatility and turbulent financing markets put a damper on the ability for private equity sponsors to invest capital," said Rob McCeney, PwC US energy and infrastructure deals partner. "However, private equity enthusiasm remains high in the sector with nine of 10 sponsor deals announces were equity commitments rather than pure acquisitions

"Lack of financing and the number of debt obligations coming due in the next 6 months could increase the number of distressed businesses and as a result, opportunities for financial investors," McCeney said.

Joe Dunleavy, PwC capital markets advisory partner, noted, "Access to equity and debt financing remained constrained, as oil and gas companies were shut out of both the IPO and high-yield debt markets in the first quarter of 2016. Limited activity in the follow-on equity and investment-grade debt markets, saw issuances decrease in volume by 43% and 54%, respectively, and 33% and 42% in value, respectively, compared to the first quarter of 2015."

There were 24 corporate deals worth $25 billion vs. 15 asset deals worth $3.1 billion in first-quarter 2016. Corporate deals were 62% of the total volume and 89% of the total value.

"Commodity prices continue to create disruption in the marketplace with companies taking impairments and cutting costs to the bone," said Seenu Akunuri, PwC US oil and gas valuation practice leader. "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."

Upstream, OFS activity jumps

The upstream segment in the first quarter accounted for 19 deals representing $9.1 billion, or an increase of 58% and 151% in total volume and value, respectively, compared with the same period in 2015.

The total number and value of oil field services deals increased 133% to seven and 346% to $1.7 billion, respectively, when compared with the same period last year.

Downstream deals remained the same at two while total value plunged 78% compared with first-quarter 2015. Deals in the midstream segment decreased 50% to 11, contributing $17 billion, a 42% decrease in value.

There were 15 deals totaling $5.6 billion related to shale regions in the first quarter. This represents a 5% increase in total value, but a 67% increase in total volume when compared with first-quarter 2015.

Activity in the upstream sector related to shale increased to 13 and accounted for $3.5 billion, or 68% of total upstream volume and 39% of the total upstream value in the quarter. Just two midstream shale-related deals took place, accounting for $2 billion, or a 56% decrease in value compared with the same period in 2015.

With three deals each, the Eagle Ford and Permian were the most active shale plays for M&A during the first quarter, with values of $1 billion and $341 million, respectively.

The Niobrara, Haynesville, and Marcellus each generated two deals, but the Niobrara led in overall value with two totaling $2.1 billion.







U.S. OIL DOWN 114,000 

U.S. DEFICIT UP 13.1% 









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