Oil and gas deals plummet, yet analysts optimisticAugust 9, 2013
A. Lee Graham
Despite a slowdown in oil and gas mergers and acquisitions, analysts behind a new industry report foresee renewed activity.
“We see M and A activity ticking back up,” said Jim Dillavou, one of several authors behind a newly released Deloitte study examining an explosion in deal-making in late 2012 and the market’s eerily quiet aftermath early this year.
According to the report, companies raced to close deals late last year. An unstable global economy, to say nothing of anticipated increases in U.S. taxes taking effect at year’s end, drove that momentum, the report said.
After the dust settled, numbers of deals had fallen by 29 percent from the first half of 2012 to the same time this year, from 338 to 240 deals. Total deal value dropped 76 percent during the same period, from $162.8 billion to $38.7 billion.
Representing the most activity was the upstream segment, which consists of exploration and production. But upstream also suffered the largest decline, losing 43 percent total deal value year to year. Still, oilfield service and midstream activity stood strong by adding numbers of
Whether the figures portend a trend has not been determined. Because study authors believe the numbers reflect what they report as companies rushing to close deals in late 2012 that otherwise may have occurred this year, the study reports that there may have been an “artificial decline” because fourth-quarter 2012 may have “borrowed” activity from 2013.
With tax increases publicized well in advance, energy companies were not taken by surprise. But were the findings what Deloitte researchers expected?
“I would not say it was expected,” said Dillavou, adding that the erratic nature of mergers and acquisitions is never easy to predict.
“Some of it is timing, and some is the ebb and flow in transactions,” he said.
The report’s focus was global – with no breakdown for Texas or other states, regions or countries – yet the decline favored no nation.
“The thing that was interesting is that the decline was fairly uniform, whether in the U.S. or globally,” Dillavou said.
News of higher taxes was expected to affect stateside deals, but reasons for the global decline are less clear.
“Talk has suddenly come up about the U.S. becoming self-sufficient in oil, as well as gas, and people are thinking that might have an impact on prices,” said Dillavou. He pointed to comments by Saudi Arabian Oil Minister Ali al-Naimi that were critical of such energy independence.
While oil and refining marketing, which form the downstream segment, and upstream activity, dropped dramatically, midstream activity, consisting of transportation and storage, saw more transactions. Meanwhile, natural gas prices stabilized.
Despite market tumult and this year’s drop in deals, analysts cast an optimistic eye.
“We think that it will ramp back up,” Dillavou said. “The thing is the fundamentals are pretty strong on oil and gas. There continues to be great interest, and most importantly, there are a lot of buyers and potential buyers out there with money to spend. So there’s no reason why it shouldn’t click back up.”