US 2016 Upstream Oil and Gas M&A Deal Value Doubles from 2015 Low on Permian Surge. Russian mega-deals dominate International deal making - 1Derrick

NEW YORK--()--US Upstream oil and gas M&A transaction value, till date in 2016, nearly doubled to $58.3 billion from a seven-year low of $31 billion in 2015, per oil and gas information and insight provider 1Derrick. Oil price recovery to over $45 per barrel by May 2016, triggered a surge of acquisitions in the US unconventional resource plays dominated by Permian. International Upstream M&A was at $62.6 billion a robust improvement over $34.2 billion in 2015 (excluding Shell’s acquisition of BG for $82 billion, which propelled 2015 M&A to $116 billion). Russia accounted for $27 billion, or 43% of the International value.

“Both rig counts and M&A activity rebounded as producers in premium plays, such as the Permian, received strong support from equity markets and private investors.”

“US unconventional basins, which are short cycle plays, benefited from higher oil prices and improved economics from significant cost cutting and operational efficiencies,” said Yashodeep Deodhar, 1Derrick Managing Partner. “Both rig counts and M&A activity rebounded as producers in premium plays, such as the Permian, received strong support from equity markets and private investors.”

Permian deal frenzy leads US unconventional resource rebound

US M&A deal activity accelerated with stabilizing oil prices, climbing rapidly from a slow $5 billion in the first quarter to $58 billion till date in 2016. Mega-deals (valued over $1 billion) rose from 4 in 2015 to 14 in 2016 as producers and private equity investors competed to build-out larger positions in premium plays. Transactions in the Permian accounted for almost $26 billion in value, over $20 billion in the second half 2016, and represented 10 of the 20 largest deals. Overall, US unconventional plays represented 18 of the 20 largest transactions. Number of transactions over $100 million also rebounded from just 59 in 2015 to 95 in 2016, reflecting the health of the M&A markets.

Despite widespread predictions of corporate consolidation, only one significant deal, the year’s largest US transaction, was a merger of two publicly traded E&Ps, Range Resource’s $4.4 billion purchase of Memorial Resource Development. Buyers overwhelmingly sought to increase positions in premium resource plays, while sellers sought to monetize previous investments as implied values surged after a long lull in M&A activity. This trend represented eight of the ten largest transactions, including EOG’s $2.5 billion purchase of Yates Petroleum, Diamondback’s acquisition of Delaware basin acreage from Brigham for $2.43 billion, RSP Permian’s $2.4 billion buy-out of Silver Hill Energy, and Rice Energy’s $2.1 billion acquisition of Vantage Energy. Private equity firms were active on both sides of the table, with 31 acquisitions and 21 divestitures.

Russia sole bright spot in bleak international market

Russian corporate activity included the three largest 2016 international transactions, the $11 billion acquisition of a 19.5% stake in Rosneft by Glencore and Qatar Investment, Rosneft’s $10.4 billion purchase of an 87.6% stake in Bashneft, and an Indian consortium’s $2.9 billion acquisition of a 34.9% stake in Vankorneft from Rosneft. Canada M&A activity accounted for another $15.6 billion, topped by Suncor’s $4.54 billion acquisition of Canadian Oil Sands. According to Mangesh Hirve, Managing Director at 1Derrick, “Deal flow in North Sea, Africa, South America and Asia was virtually non-existent. Outside of Russia and Canada, only 5 deals over $1 billion were struck.” These include Statoil’s $2.5 billion acquisition of 66% interest in Carcara discovery from Petrobras, ExxonMobil’s $2.5 billion offer for InterOil, Rosneft’s $1.58 billion acquisition of 30% interest in Zohr field from Eni, KazMunayGas $1.22 billion offer for remaining 36.87% stake in KazMunaiGas EP, and BP divesting Norwegian subsidiary to Aker and Det Norske for $1.15 billion.

Midstream, Oilfield Service activity surges, Downstream flat at robust level

Total Midstream transaction value was $145.7 billion ($112 billion in 2015), the second highest in the last six years. M&A activity, which had been slow since the first quarter 2015, surged in the second half of the year on two major transactions, the $51.2 billion merger of Sunoco Logistics Partners and Energy Transfer Partners, and Enbridge’s $46.6 billion purchase of Spectra Energy. Oilfield Service transaction value doubled to a six-year high of $52.6 billion ($26 billion in 2015), also on two major transactions, GE Oil and Gas’s $32 billion merger with Baker Hughes and the $14 billion Technip-FMC merger. Downstream deal value was steady at an elevated $64 billion ($51 billion in 2015). The largest transactions were the Rosneft/Trafigura-led consortium’s $12.9 billion acquisition of 98% of Essar Oil, Macquarie led consortium acquiring 61% stake in UK gas distribution business from National Grid for $10.64 billion, and Tesoro’s $6.4 billion purchase of Western Refining.

1Derrick (www.1derrick.com), is an independent oil and gas research firm with offices in Houston, New York, London, Singapore and Bangalore. For more information on 2016 upstream M&A or 1Derrick’s upcoming research, please contact Ajit Thomas.

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