US oil and gas deals insights: 2016 full-year update

Like the warm up laps of an IndyCar race, the 2016 Oil & Gas M&A market started slowly in 2016 but gained velocity each quarter. The first quarter saw an environment of risk aversion, valuation gaps and non-receptive capital markets. As commodity prices began to recover in the middle of the first quarter, so did deal-makers’ enthusiasm for transactions. As a result, the second quarter deal activity showed improvement, but the market as a whole remained in low gear. 

Deals activity awakened in Q3 driven by stabilizing commodity prices, strengthened capital structures and thawing capital markets. Finally, in Q4, deal-makers’ confidence rose even more, driven by the announcement of OPEC’s and Russia’s agreement to curtail production as well as the election of a new administration that many industry players presume will be favorably disposed to business in general and the oil and gas industry in particular. 

Other fundamentals encouraged dealmakers as well, most notably the impressive productivity gains made during the downturn. OPEC’s flooding the market over the past two years did not drive out shale producers; rather, low oil prices have made the survivors stronger and more competitive. 

As we move into 2017, deal-makers are in high gear, with a green flag and a full tank of gas.

Key trends/Highlights 

  • Fourth quarter 2016 deal volumes were 30% higher than in Q3, and 45% higher year-over-year. Total deal value in Q4 was $84.8 billion, or 49% higher than Q3, and 168% higher when compared to the fourth quarter of 2015. This resulted in a 11% increase in the number of deals in 2016, and a total deal value for the year of $195.7 billion. 
  • Upstream deal value and volume increased significantly in 2016, rising 111% and 53%, respectively. Deals in the upstream space contributed 60% of the total deal volume, and 33% of the total deal value in 2016 vs. 44% and 16% in the prior year. 
  • While midstream value declined 35% in 2016, deals in the sector still totaled $84.0 billion. Midstream deals value in the fourth quarter was 195% higher year over year, driven by the announcement of three mega-deals in the segment. 
  • Nearly half of Q4 deals were shale-related. Demand remained strong for assets in the Permian and Marcellus basins. This has pushed multiples in the Permian to heights not seen since before the commodity downturn.

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Ashley Apel
US Energy Marketing Manager
Tel: +1 (713) 356 4185
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