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.