Wave of Mega Deals Across Subsectors Push Deal Value to New High
Increase in Activity from Foreign Buyers Contributes to Second Quarter Deal Value
HOUSTON, TX, July 30, 2014 – Mergers and acquisitions (M&A) activity in the oil and gas industry increased substantially in terms of value and volume in the second quarter of 2014 compared to both the prior quarter and the second quarter of last year, according to PwC US. An increase in mega deal activity coupled with ongoing interest from foreign and domestic buyers for divested assets built on the high level of deal activity in the first quarter of 2014, resulting in a strong six months of deal activity for the first half of the year.
For the three month period ending June 30, 2014, there were a total of 54 oil and gas deals with values greater than $50 million accounting for $42.2 billion, compared to 47 deals worth $30.3 billion in the second quarter of 2013. On a sequential basis, deal volume in the second quarter of 2014 increased by 15 percent from the 47 deals in the first quarter of 2014, with total deal value increasing 131 percent from $18.3 billion in the first quarter of 2014. The first half of 2014 saw 101 total deals worth $60.5 billion.
“The first three months of 2014 set the stage for the strongest second quarter of oil and gas deal activity that we’ve seen in the last five years. Over the past three months, we continued to see companies looking to realign their portfolios and divest non-core assets, which provided opportunities for acquirers with cash and access to capital,” said Doug Meier, PwC’s US energy sector deals leader.
For deals valued at over $50 million, asset transactions continued to dominate total deal volume during the second quarter of 2014 with 44 deals representing 81 percent of total deal volume. Asset deal value reached $27.3 billion or 65 percent of total deal value for the second quarter of 2014. Corporate transactions represented 10 deals totalling $14.9 billion during the quarter.
Foreign buyers announced 15 deals in the second quarter of 2014, accounting for $8.5 billion in value, a significant increase over one deal worth $590 million during the same period last year. On a sequential basis, the number of foreign deals increased 50 percent from the 10 total deals in the first quarter of 2014 as total deal value also increased 98 percent.
There were 12 mega deals during the second quarter of 2014, representing $30.8 billion, or 73 percent of total deal value, driven by larger oil and gas companies divesting more valuable assets.
Upstream deals accounted for 61 percent of total deal activity in the second quarter of 2014 with 33 transactions representing $21.7 billion, or 51 percent of total second quarter deal value. There were 10 midstream deals that contributed $12.1 billion, and seven downstream deals during the second quarter of 2014 added $7.5 billion, compared with 12 midstream deals worth $17.5 billion and five downstream deals worth $1.4 billion during the same period last year. The number of oilfield services deals dipped 30 percent while value dropped 80 percent.
According to PwC, there were 21 deals with values greater than $50 million related to shale plays in the second quarter of 2014, totalling $20 billion, or 47 percent of total deal value. In the upstream sector, shale deals represented 17 transactions and accounted for $11 billion, or 51 percent of total upstream deal value in the second quarter of 2014. There were four midstream shale-related deals in the second quarter of 2014, representing $9 billion, an increase in volume from the two deals representing $210 million in the first quarter of 2013.
“In the second quarter, overall shale deal value jumped substantially reaching $20 billion, compared to $4.4 billion in the first quarter of 2014 and $7.7 billion during the second quarter of 2013,” said John Brady, a Houston-based partner with PwC’s energy practice. “The continued interest in shale plays is a testament to how companies and investors view the success of the unconventional landscape, especially as new technologies and methods come to fruition that increase speed and efficiency from the upstream and drilling process to transportation and bringing oil and gas to market.”
The most active shale plays for M&A with values greater than $50 million during the second quarter of 2014 include the Eagle Ford in Texas, which had six deals with a total value of $6.9 billion, followed by the Niobrara and Permian plays with three deals each, representing $432 million and $1.1 billion, respectively. The Marcellus Shale represented two deals worth $2.9 billion, while the Utica and Bakken Shales each generated one deal.
During the second quarter of 2014, master limited partnerships (MLPs) were involved in 19 transactions, representing about 35 percent of total deal activity in the quarter, consistent with recent historical levels.
Financial investors continued to show interest in the oil and gas industry with four total transactions, totalling $7.7 billion during the second quarter of 2014, which was more than a 400 percent jump in deal value compared to the same time period in 2013.
“There was an increase in financial investor involvement in the second quarter focused on midstream divestitures evenly split between corporate and asset,” said Rob McCeney, PwC U.S. energy & infrastructure deals partner. “In the second half of 2014, we expect private equity to continue to monetize assets, but also pursue divested assets in the midstream and upstream space as they continue to look for opportunities to deploy capital.”
Deal activity in the Gulf of Mexico represented two deals worth $251 million, a decrease from the five deals worth $4 billion in the first quarter of 2014.
“A theme to watch is whether large consumers of commodities such as natural gas accelerate their investment in E&P assets via investments or acquisitions. Additionally, we’ll keep an eye on oil export opportunities given the recent rulings on condensate export,” added Meier.
PwC’s Oil & Gas M&A analysis is a quarterly report of announced U.S. transactions with value greater than $50 million analyzed by PwC using transaction data from IHS Herold.
We focus on customizing three things- assurance, tax and advisory services- to meet the unique challenges of energy companies. How we use the knowledge and experience we've gained from serving the largest and most complex energy companies to the entrepreneurial start-ups depends on our clients' goals and culture. Taking the time to get to know our clients and listening to their needs lets us use our energy team-- of 3,100 people located around the world -- to create the value our clients want.
For more information about PwC’s Energy practice, visit: www.pwc.com/energy.
About PwC US
PwC US helps organizations and individuals create the value they're looking for. We're a member of the PwC network of firms in 157 countries with more than 184,000 people. We're committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com/US. Gain customized access to our insights by downloading our thought leadership app: PwC's 365™ Advancing business thinking every day.
© 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC US refers to the US member firm, and PwC may refer to either the PwC network of firms or the US member firm. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
# # #