PwC: US M&A activity reaches highest 1Q volume in more than a decade

The US oil and gas industry recorded its highest volume of first quarter mergers and acquisitions (M&A) in more than a decade, PwC US Energy Practice said in an Apr. 30 report on transactions with value greater than $50 million. The movement was a result of rising upstream activities and increased interest from foreign entities.

Forty-three oil and gas deals with values greater than $50 million occurred through Mar. 31, accounting for $19.8 billion, compared with 41 deals in last year’s first quarter (OGJ Online, May 6, 2013). The first-quarter 2014 total included five megadeals, representing $10.1 billion, compared with eight megadeals worth $19.7 billion in first-quarter 2013.

Upstream deals accounted for 63% of deal activity in the first quarter with 27 transactions, representing $14.2 billion, 72% of total first quarter deal value.

Foreign buyers participated in 12 deals in the first quarter, which contributed $8.3 billion, 42% of total deal value vs. 10 deals valued at $4.3 billion during the same period last year, representing a 92% increase in deal value. On a sequential basis, the number of total deals remained the same as total deal value increased 72%.

“The first 3 months of 2014 represented a historic first quarter across the board led by deal activity in the upstream sector, including in the Gulf of Mexico and interest from foreign players,” said Doug Meier, PwC US energy sector deals leader.

“Divestures continue to be a major source of deal activity, but we are seeing smaller deals taking place; larger portfolio adjustments have already been made. Smaller deals are also happening in the oilfield services sector as a result of companies selectively looking to fill in the white space by adding assets that can increase productivity and reduce costs.”

However, compared with last year’s fourth quarter, the total value of deals dropped by 23% from 56 deals, with total deal value in the first quarter falling 54% from $43 billion in the fourth quarter (OGJ Online, Jan. 28, 2014). PwC attributes the sequentially downward movement to companies divesting in smaller noncore assets, a trend it expects to continue through this year.

‘Shift towards unconventionals’

There were 17 deals with values greater than $50 million related to shale plays in first-quarter 2014, totaling $6.2 billion, 31% of total deal value, PwC indicated.

In the upstream sector, shale deals represented 14 transactions and accounted for $5.7 billion, 29% of total upstream deal value. There were two midstream shale-related deals, representing $210 million, a drop in volume from the six deals totaling $7.7 billion in first-quarter 2013.

“First quarter shale deal activity was on par with what we anticipated as we see the continued shift towards unconventionals,” said John Brady, a Houston-based partner with PwC’s energy practice. “A third of total deal value was related to shale plays in the first three months of the year, indicating the ongoing attractiveness of capitalizing on the long-term prospects for shale gas."

The most active shale plays for M&A deals include the Eagle Ford, which had five deals with a total value of $3 billion, followed by the Bakken and Permian plays with three deals each, representing $863 million and $276 million, respectively.

The Utica shale generated only one deal. However, the deal was the second largest in value in the first quarter at $924 million. The Niobrara contributed one deal worth $180 million.

Brady added, “Unconventionals will continue to play a large part in deal activity going forward, as will finding opportunities for reducing cycle times and increasing productivity through new technologies and processes to increase speed and efficiency.”

Deal breakdown

Nine oil field services deals totaled $2.3 billion, representing a 390% year-over-year increase in value and 350% year–over-year increase in volume. Three downstream deals during the first quarter added $2 billion. There were four midstream deals that contributed $1.3 billion, a 91% decrease in deal value from fourth-quarter 2013.

In the Gulf of Mexico, there were five deals worth $3.9 billion, compared with one deal worth $100 million in the fourth quarter.

For deals valued at more than $50 million, asset transactions continued to dominate total deal volume during the first quarter, with 36 deals representing 84% of total deal volume. Deal value reached $13.2 billion, 67% of total deal value. Corporate transactions represented seven deals totaling $6.5 billion during the quarter.

Master limited partnerships (MLPs) were involved in 11 transactions, representing 27% of total deal activity in the quarter, consistent with recent historical levels.

Financial investors continued to show interest in the oil and gas industry with two total transactions totaling $1.9 billion, which was more than a 230% jump in deal value compared with the same period last year.

“Although financial investor deal activity was low during the quarter, we’re still seeing continued interest from these players, particularly in the upstream and Gulf of Mexico as they’re looking to capitalize on divested assets from corporates,” added Rob McCeney, PwC US energy & infrastructure deals partner.