PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for the rest of 2021.
Oil and gas posted 100 deals with a total deal value of $141 billion in the last twelve months (LTM). Deal counts were up 70% in the second half of LTM compared to the first half. However, deal values were down 51% due to the larger megadeals in the first half of the LTM. There were nine megadeals in the LTM representing two-thirds of the total deal value. Though upstream led in cumulative LTM deal value, the $21 billion 7-Eleven/Marathon downstream deal was the largest. Corporate deals totaled 58% of total deal value over the LTM as large consolidation deals drove values. Conversely, asset deals accounted for 54% of the deal volume as companies fine-tuned portfolios. Private equity investments continue to be limited, with only five in the LTM. While upstream and oilfield services (OFS) majors used both cash and stock to fund deals, midstream and downstream relied mostly on cash-funded transactions.
The oil and gas industry continues recalibrating in response to an array of shifting market drivers. Despite stabilizing supply and demand considerations as economies recover, companies remain focused on capital discipline and shareholder value. This could present headwinds for deals opportunities for many companies, as other competing calls for cash will require deals to demonstrate strong prospects to deliver accretive returns more quickly than other capital investment alternatives. The pace of consolidation is slowing, although still needed as players and assets outpace demand. A few more corporate deals are likely in 2021 along with asset plays in core basins like the Permian.
Energy transition momentum and environmental, social and governance (ESG) adoption will likely be significant drivers this year. We expect deals to increasingly target enabling technologies (e.g., digital, carbon capture, lower carbon technologies, etc.) and assets to diversify outside of core oil and gas operations while reducing carbon footprints across the sector. Investment focus will likely shift toward climate-focused domestic and global decarbonization targets which could accelerate opportunities across all oil and gas sectors for both corporates and financial buyers.
We see four deal components driving 2021 oil and gas M&A:
“Synergy exploitation through consolidation has replaced inventory growth as the new mandate driving M&A activity in the current higher price environment.”
Energy Deals Leader, PwC US