M&A activity in the utilities sector tends to be cyclical. Volume ebbed during the 2008-09 recession, picked up strongly thereafter through mid-2011, and subsequently dropped off. Mergers or acquisitions can mitigate some of the challenges. As always, meticulous due diligence is crucial in both evaluation and integration.
The oil and gas sector has seen an uptick in investment activity, notably by private equity funds. The opportunity they and other investors see reflects the evolving nature of the US energy supply.
There’s been dramatic growth in gas resources from what used to be considered “unconventional” sources – shale, mostly. The exploitation of shale deposits often comes up in the news media nowadays. But, irrespective of debate, one thing is clear: the increasing need new sources create for new, long-lived infrastructure. New processing, storage and transmission facilities are an industry priority.
The geography has changed, and with it the directional flow of the product. Formerly, most US oil and gas flowed north and northeast from the Gulf Coast and the Southwest. Now, there’s major gas production underway in Pennsylvania, New York, Colorado, North Dakota and other states remote from those old centers of activity. A lot of product is flowing in what amounts to the opposite direction.
Hence the need for new infrastructure for oil and gas originating in these new geographies. Ergo, the need for significant capital investment.
Like other players in the power/energy sector, oil and gas companies have seen benefits in mergers and acquisitions. Both current needs and current operations greatly exceed historical levels, and consolidating both capital and human resources makes sense.
Infrastructure investors face an array of risks, from those associated with development and construction to commodity price exposure; the latter will vary by type of contract. Another consideration is the regulatory climate, where the future is hard to predict. A thorough understanding of these risks is an indispensable ingredient in the success of the investment.