Survey: Half of energy CFOs likely to be active in M&A in coming year

The deal dance looks set to go on.

A little more than half of energy-company CFOs recently told Grant Thornton researchers there’s at least a moderate probability that they will participate in a merger or acquisition over the next 12 months.

Of the more than 160 executives—nearly 40% of them at natural resources, midstream, or refining businesses—who responded to Grant Thornton’s questions on a broad range of financial and other business topics, 24% said there is a high chance they will be involved in M&A by next fall. Another 27% said there’s a moderate probability while only 14% think it’s almost certain they won’t take part in a deal.

While the Grant Thornton team didn’t ask executives about their M&A expectations last year, Managing Director of Transaction Advisory Services Philip Christy said it’s likely the 51% of leaders who think there’s at least a moderate chance of doing a deal soon is higher than before. Key to that, he said, is a greater collective confidence in the future demand for hydrocarbons while the renewable-energy sector adjusts to some growing pains.

That confidence has helped stabilize oil price expectations in the low- to mid-$70s per barrel, as evidenced by the most recent quarterly Dallas Fed Energy Survey (OGJ Online, Sept. 25, 2024). Christy said that’s making life easier for CFOs evaluating opportunities and building transaction models—even as a lot of them have been improving their own firms’ finances.

“That resonates a lot with people,” he added. “But you also have stable, fortified balance sheets and strong cash flows.”

Bryan Benoit, global head of energy and natural resources at Grant Thornton, said the recent years’ change in sentiment around when oil demand will peak is making it easier for potential buyers and sellers to engage with each other. Also likely to help on that front in the coming year is the result of the presidential election, regardless of winner. Knowing who will be in the White House will further clarify the structure for deal conversations.

Analysts at Wells Fargo Investment Institute earlier this month cited the energy sector’s improving long-term fundamentals as key to naming integrated oil producers and midstream energy firms the most favorable sub-sectors of the Standard & Poor’s 500. An additional reason, the analysts said, for their recommendation: Recent M&A activity has made companies more efficient.

That idea—not just completing a deal but showing investors you can generate forecasted savings and improve operations—could be the main factor that pushes the Grant Thornton report’s 51% figure higher in the near future, Benoit said. Success breeds success.

To download the Grant Thornton team’s Energy CFO Survey, click here.