It seems that the plunge in crude prices has not spurred mergers and acquisitions (M&A) in the upstream sector, as the deal values continue to slip.
Analysis from GlobalData
According to a report by research and consulting firm GlobalData, M&A values in the upstream oil and gas sector decreased to $11.7 billion in May (from 13 transactions), compared with a massive $71.2 billion in the previous month. However, the April figure was skewed by Europe’s largest oil company Royal Dutch Shell plc’s RDS.A acquisition of BG Group plc for $69.9 billion. Excluding the Shell-BG agreement, the fall in month-over-month deal flow – April to May – came in at a modest 17%, from $28.5 billion to $23.5 billion.
As per the publication, the top North American deal of the month was the Mexican multinational conglomerate Alfa SAB de CV’s collaboration with British energy firm Harbour Energy Ltd. to acquire the remaining 81.05% interest in Pacific Rubiales Energy Corp. – the largest independent oil and gas producer in Latin America – for $5.3 billion.
Cheap Energy Fails to Spur M&A Boom
With oil prices in a freefall, it was thought that M&A activity would get a boost with stronger companies lining up to buy weaker rivals. When Halliburton Co. HAL decided to go for Baker Hughes Inc. BHI and Repsol S.A. REPYY agreed to purchase Canada's Talisman Energy Inc., it was thought that these were just the start of big energy deals amid the slump in commodity prices.
But deals have been few and far between as prospective candidates wait for better offers. Moreover, the crude price tumble and the ensuing upheaval have made it difficult for the buyers and sellers to arrive at a consensus.
What’s in Store for the Future?
Despite the lull in the market, a prolonged period of low oil prices will eventually lead to ‘survival of the fittest.’ Larger companies – especially those with cash to spend – will likely take advantage of this opportunity and buy quality assets at cheap valuations. The most vulnerable companies are the ones with increasing levels of debt. Even top energy firms like BP plc BP may become takeover targets should the oil glut persists.
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