M&A deals signal change in the air

Upstream merger-and-acquisition (M&A) deal values ballooned in the first half, but the past frenzy from players to get their teeth into unconventional plays has cooled, according to a report.

The oilfield equipment and services sector also saw the number of deals fall, with the sector possibly set for more consolidation in the second half of the year as oil companies continue to cut back on spending, the report from Deloitte read.

Upstream deal values worldwide surged 90% year-on-year to almost $100 billion in the six months to the end of June, the consultancy wrote in its midyear report. The number of exploration and production deals was also up 13% from 205 to 231.

Although the North American shale space continued to dominate, accounting for 47% of the global total number of upstream transactions, the segment was not as rosy as before, the report contended.

“The past frenzy among companies to get into shale has subsided, as some of the bigger players have become more cautious, thereby forcing companies to concentrate on optimising their portfolios and containing their costs,” it said.

The upstream sector could be set for consolidation amongst smaller players, Deloitte contended, as some larger players in the US Gulf of Mexico started to shed shallow-water assets to concentrate on larger projects – such as deep-water and shale plays.

The oilfield equipment and services sphere could also be set for consolidation “among smaller regional service providers” as cost-containment among oil companies continues to put pressure on margins.

Although deal values in this sector rose 22%, the number of deals actually slipped 37% from 57 to 37.

“Some oilfield services companies have found themselves under pressure from activist shareholders, who are urging them to boost earnings,” Deloitte said.

“The oilfield services sector continues to attract the interest of private equity investors, especially among funds looking for ways to diversify their industry base and invest in energy.”

The downstream refining and marketing segment had a bumper six months, however, with the total deal value up 170% from $6.3 billion to $17 billion. This was largely driven by expectations of economic recovery in the US, Australia and Asia.

The midstream segment suffered a “dramatic slowdown” in deal numbers – which fell from 28 to 14 – and value – which fell from $32 billion to $11 billion.

With the proliferation of upstream activity in North America, pricing for midstream assets has risen sharply, and the increase may have put a damper on deal activity,” Deloitte said.

The report sounded a positive note for the sector, however, continuing: “The need for additional pipelines and processing facilities is likely to persist, driving demand for new construction.”

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