US oil and gas deals insights: Q1 2018

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Capital discipline drives deal volume

Historically, the first quarter has been a slow quarter for deal-making. Overall deal volumes decreased 7% sequentially but were up 19% year-over year, making it the strongest first quarter deals volume since 2015. However, total deals value fell 16% sequentially and 44% year over year.

The most significant difference between this year's first quarter and last year's is that the risk tolerance for transformational deals has softened. Deals are now being evaluated in the broader context of capital discipline, with the emphasis on return on capital and free cash flow generation. This is likely to result in a high volume of deal-making for the rest of the year, but at lower values as we have seen in recent quarters.

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Key Trends and Highlights

  • While the beginning of 2017 was marked by an appetite for risk, 2018 began with a focus on capital discipline; consistent, positive returns; and operations that can sustain themselves within existing cash flows. We believe this shift in priorities and strategy will continue to reshape the deal-making environment in 2018.
  • Upstream was the only segment that saw a significant uptick in deals value -- up 76% since the fourth quarter of 2017. In all other segments, the number and values of the announced transactions were down. Shale remained a major driver of deal activity in the first quarter with 31 deals worth a total of $24.10 billion, a 145% sequential increase in shale deal value.
  • Midstream companies are seeing some attractive greenfield capex options, especially in basins such as the Permian, where production will soon exceed take-away capacity. This internal allocation of capital to greenfield opportunities leaves less capital available for deal-making.
  • Transaction Trends in Oil and Gas: Q1 Deals Insights and Analysis Webcast Replay.


 

Contact us

Joe Dunleavy
PwC US Energy Deals Leader, PwC US
Tel: +1 (713) 382 6638
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