Energy: US Deals 2023 outlook

Unprecedented times reap opportunities

Ongoing geopolitical uncertainty, high commodity prices, record break-even margins and the continuing shift to decarbonization create an unprecedented environment for oil and gas companies as well as new opportunities. In the coming year, companies are likely to focus on monetizing non-core assets to expand portfolios in new directions, including carbon capture technology, renewables, liquefied natural gas, hydrogen and biofuels. Government incentives like the Inflation Reduction Act could help to make cleaner energy investments more economical while allowing companies to achieve faster returns.

The market for valuable assets continues to be strong as we have seen some quality deals close this past year. Rather than the historical use of debt to finance transactions, energy companies are likely to invest free cash flow back into strategic deals with a focus on longer-term returns. Dealmakers may also look to leverage higher equity resulting from current commodity prices as currency for transactions. As a result, we anticipate that deal activity will continue to gain strength in 2023.

Explore national deals trends

Steadiness despite pressures

Geopolitical pressures — including the Russia-Ukraine war and production decisions by OPEC — continue to drive commodity prices. In addition, new COVID lockdowns in China have led to a sharp decline in demand that is undercutting crude prices.

While economic and geopolitical uncertainty continues to be a factor, year over year energy deal activity remained steady. Our look back at the last twelve-month (LTM) period ending on November 15, 2022 showed 140 deals valued at $112 billion. This is up from 119 deals valued at $103 billion during that same period the previous year.

As we move into 2023, Europe’s search for alternative energy supplies that aren’t dependent on Russia could benefit US producers. Many European and Asian countries, seeing the level of investment in US LNG facilities, are looking to America as a source of future natural gas supplies.

This is likely to be a key driver of demand for natural gas exports for decades to come — and it could encourage investment and deals around the natural gas space. At the same time, growing pressure to reduce carbon emissions is driving divestiture of traditional oil assets in favor of natural gas.

Timely and objective divestitures

Energy investors are wary of companies expanding or chasing growth. Management should use their portfolio review process to allocate assets and drive the return on capital. Investors are looking for signs of fiscal discipline amid higher commodity prices.  

Energy companies that make timely and objective divestiture decisions are at an advantage in creating value and generating shareholder returns.

According to an upcoming PwC study, most energy and utilities companies that develop a reinvestment plan for divestitures report returns of five percent or more. In our interviews, however, industry executives said a lack of in-house expertise can lead to execution delays. Having a qualified advisor can reduce these delays and maximize divestiture value. 

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Sub-sector outlook

E&Ps look to divest non-core assets

Given the interest in reducing carbon emissions, larger exploration and production (E&P) companies may use cash generated from higher margins to acquire renewable assets even as they divest non-core oil and gas properties.

For private companies and private equity investors, these divested assets may be attractive. Even in the traditional oil space, they can recognize these properties still hold short-term value.

In addition, oil and gas producers are likely to take advantage of high commodity prices to concentrate acquisitions in areas where they already have acreage. For example, a company might sell offshore properties to acquire more acreage adjacent to leases it already holds in the Permian Basin to increase the efficiency of its drilling operations. 

To the extent that commodity prices will drive deal activity in the coming year, it will likely involve gas assets. Buyers may try to capitalize on the uncharacteristic price dip in the fall of 2022, seeing it as a discount to summertime highs. 


Midstream deal activity likely to advance

We expect midstream deals to accelerate over the next two years as several pipeline construction projects are completed. Several other new lines have been built to bring natural gas to LNG plants on the US Gulf Coast. While new construction remains a challenge, the federal government has eased permitting restrictions.

Midstream companies may look to expand their existing networks and interconnects. The growing demand for natural gas may encourage customers to sign take-or-pay contracts that would encourage midstream companies to acquire additional capacity if they can see guaranteed production upstream. However, like upstream companies, pipeline operators must reassure investors that they aren’t sacrificing cash for growth.  

OFS look for deals in renewables

Service companies continue to shore up renewables offerings with small acquisitions, including the addition of service offerings for wind and solar installations. These are not transformative deals. The core business is still servicing fossil fuel production, but these transactions show investors that service companies are serious about decarbonization.

In serving renewables, oilfield services providers face growing competition from utilities, which will encourage increased acquisitions of smaller renewables servicing companies.

Even though producers are drilling fewer new wells in recent years, they are completing existing reserves. That, in turn, has improved service company margins, giving them more cash for acquisitions in renewables. 

Downstream looks to repurpose assets

With few new refineries being built — because of the expense and environmental regulations — downstream deal activity remains sluggish. However, as refineries increase their ESG initiatives — switching to biofuels, hydrogen and renewable diesel — we may see some acquisitions around these offerings.

In addition, refiners looking to reduce carbon output — and generate decarbonization tax credits — may acquire or install carbon capture technology. The Inflation Reduction Act offers incentives that make biofuels and hydrogen production more economical, which could drive additional deals, especially from private equity investors. 


“Current commodity price environment, record break-even margins and equity values give companies the ability to make deals without taking on debt as well as invest in renewables, carbon capture, bio fuels, hydrogen and other expanding focus areas.”

— Seenu Akunuri, US Energy, Utilities and Resources Deals, Principal, PwC US

Key deal drivers

Competition for assets and capital efficiency

Large oil and gas companies will continue to divest assets as they adjust the mix of their portfolios to meet growing ESG demands and satisfy policies that encourage green energy. E&P companies remain hesitant to invest more capital for additional exploration and production. Midstream and downstream companies are also cautious about committing billions of dollars to projects that could take 10 years or more to complete, as there's uncertainty around fossil fuel's long-term demand.

Companies may make some strategic deals in the short-term, especially if commodity prices remain strong. Private companies, in particular, are more likely to take the lead on domestic deals, especially for oil assets. 

In Europe, the major producers will continue to shift capital from traditional oil and gas assets into renewables and green investments, as well as LNG imports from the US and elsewhere as they look for alternative sources to Russian natural gas. 

Navigating policy uncertainty

Russia’s war in Ukraine continues to be the biggest factor affecting the global energy industry. Natural gas shortages in Europe have caused record price increases, and supplies remain constrained. That has boosted demand for LNG exports, especially from the US. The war’s impact is likely to be felt in European energy markets for years and may have permanently altered the demand-and-supply landscape of the continent as countries look to other gas suppliers.

The passage of the Inflation Reduction Act and other policies aimed at fighting climate change and reducing carbon emissions are shifting incentives away from oil and gas development. Oil and gas companies face a challenging environment as they try to adjust their asset base and appease investors who want them to lower emissions.

Those sentiments will continue to drive deals in 2023 as companies attempt to add more renewable and cleantech assets to their portfolios.

At the same time, the higher cost of capital and growing concern about where the economy is headed create questions that remain unanswered. This includes whether the Federal Reserve can tame inflation without triggering a recession. Most economists expect interest rates to continue to rise, which could put a damper on deal activity.

Speed to unlocking value

Other industries working to reduce their carbon footprint may drive long-term deals focused on developing blue hydrogen, which is hydrogen made from natural gas in which the emissions are offset by carbon capture. The Inflation Reduction Act creates longer-term incentives that may make investing in blue hydrogen development more attractive.

Hydrogen investment could appeal to both upstream and downstream players in the sector. It offers the potential for an alternative, clean-burning fuel that could have widespread appeal across a range of industries. 


Increasing security and resiliency

Decarbonization efforts can both add to and detract from energy security. On one hand, renewables are generated domestically, which make them immune to global geopolitical disruptions. On the other, the US market will remain heavily dependent on fossil fuels for years, if not decades. Making the switch to widespread, reliable use of renewables will take decades of continued investment.

In the short term, the energy sector continues to wrestle with supply chain disruptions from the COVID-19 pandemic that continue to affect the industry’s ability to find raw materials such as steel for drill pipe.

In addition, cybersecurity remains a major concern for the industry following a high-profile ransomware attack in 2021. Companies have increased cybersecurity to protect infrastructure assets and they are assessing the resiliency of their cyber footprints. Many are moving systems that they have previously operated in-house to cloud platforms

Decarbonization and energy independence

Record energy industry profits and strong global commodity prices could encourage more deal activity, especially among companies looking to diversify their holdings and invest in decarbonization technology. Policy incentives, such as the Inflation Reduction Act, could drive more traditional oil and gas companies to invest in renewables and carbon capture technology.

Efforts to reduce Europe’s dependence on Russian gas in the wake of the Russia-Ukraine war will increase demand for US LNG shipments to the continent. That could, in turn, drive deal activity for natural gas assets such as pipelines and gathering systems. 

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Seenu Akunuri

Seenu Akunuri

Energy, Utilities and Resources Deals, Principal, PwC US

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