More oil and gas mergers forecast

Industry analyst A.T. Kearney suggests that there will be structural changes across the oil and gas industry in the coming 12 months, with merger and acquisition (M&A) activity intensifying.

In its latest Mergers and Acquisitions in Oil and Gas 2017 report, A.T. Kearney suggests that as oil prices have stabilised above the USD30 per barrel lows seen in 2016. Confidence is returning  to the sector, which is fuelling investment opportunities.

M&A activity accelerated in 2016, when compared to 2015, with nearly half of all deals made last year coming in the fourth quarter. The value of these deals increased sharply and this momentum carried on into 2017.

If 2016 and 2017 deal totals look strong, it’s partly because so many deals fell through in 2015. Companies abandoned USD106 bn worth of transactions, or 22 percent of the deals announced in 2015. However, at the time of publication, about 45 percent of the USD850 bn worth of transactions announced since January 2016 were still pending.

Two-thirds of executives interviewed expect M&A to rise through 2017, as sellers look to bolster liquidity or raise capital to fund capital projects or upgrade their portfolios. Moreover, many buyers need acquisitions to replenish reserves that have dwindled during the past two years.


Megadeals that have taken place since 2016 include Sunoco’s USD50 bn purchase of Energy Transfer Partners, the pending USD43 bn merger of Enbridge and Spectra Energy, and a USD32 bn deal that combined GE’s oil and gas operation with Baker Hughes.

M&A has reshaped the oil services industry since Schlumberger announced its USD14 bn purchase of Cameron in August 2015, triggering a wave of consolidation among major players seeking scale and new capabilities. GE acquired Baker Hughes for USD32 bn in 2016, followed quickly by the USD7 bn merger of FMC Technologies and Technip SA in January 2017. Since then, Wood Group has agreed to buy Amec Foster Wheeler for USD4 bn, Transocean announced a USD3 bn deal for Songa, and Ensco agreed to pay USD1 bn for Atwood. M&A activity at the lower end of the oil service market, however, has been low, says A.T. Kearney.

Midstream companies led the way in deal making in 2016, with USD159 bn worth of transactions accounting for 36 percent of oil and gas industry M&A value. This reflects the relatively stable revenue streams seen in the midstream sector, which are unaffected by low prices for the oil and gas they transport.

Several large transactions announced in 2016 in the midstream arena are still pending, with Sunoco–ETP</strong (USD51 bn) and Enbridge–Spectra Energy (USD43 bn) topping the list. TransCanada and Cheung Kong Infrastructure also made acquisitions valued at more than USD10 bn.

Respondents to the Mergers and Acquisitions in Oil and Gas 2017 report also highlight a renewed interest in downstream M&A, especially among petrochemicals companies.

In 2016, downstream transaction values reached the highest level since 2012. Rosneft paid USD13 bn for a 49 percent stake in Essar Oil and Vadinar Oil Terminal. JX Holding acquired TonenGeneral Sekiyu for USD6 bn, while Tesoro bought Western Refining in a USD4 bn deal, rebranding the combined company as Andeavor.

Industry leaders expect this M&A trend to continue into throughout 2017, increasing by as much as 10 percent over the year. Private equity will lead the way, along with some sovereign wealth funds seeking more oil and gas deals. Financial investors also have plenty of capital to deploy. At the same time, international oil companies (IOC) and larger independents are coming back to the market, and consolidation among large oil services companies shows no sign of abating.

Linde Group Gazprom LNG, oil and gas, energy, mergers and acquisitions.

Source: A.T. Kearney

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