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Megadeals Boost Global Oil, Gas Transactions To $395B In 2016

Shale rig

Although the volume of global oil and gas transactions dropped last year, the deals’ total value rose to US$395 billion from US$340 billion in 2015, thanks to megadeals in the midstream and oilfield services segments, EY said in its Global oil and gas transaction review 2016 published on Wednesday.

In early 2016, companies were more concerned about adapting to the new reality, and transactions took a back seat, according to Andy Brogan, EY Global Oil & Gas Transactions Leader. But Brogan went on to add:

“Now, with the consensus throughout the sector that the worst is behind us, we’re starting to see a shift as companies realize that there may be a cost to inaction. We expect to see the momentum that began in the fourth quarter of 2016 continue in the year ahead.”

EY’s transaction review estimates that the total upstream deal value dropped by 14 percent to US$130 billion in 2016, but excluding the mega Shell-BG deal from 2015, last year’s activity improved, especially in the fourth quarter as renewed confidence started to settle in on the market. The U.S. transactions led the way - with the Permian setting record deal volumes – and the North American industry recorded more than US$76 billion in upstream transactions last year, compared to US$43 billion in 2015. In many other regions transaction activity remained subdued as buyers and sellers struggled to reach agreements on values amid the price shocks in the industry, EY said.

Recent figures from other industry research firms point to U.S. deals being definitely on the rise. Over the past 12 months, the number of M&A deals in the shale patch rose to 385 from 285 in 2015, according to industry research firm PLS. More impressive was the rise in total value, however, to US$69 billion last year from US$32 billion in the year before.

Related: U.S. Shale Sees Rebound In 2017…But Mostly From The Permian

According to EY’s review, total global midstream value jumped by 29 percent to US$146 billion, with activity in the U.S. and Canada dominating the 2016 transaction activity, accounting for 89 percent of deal volume and 93 percent of deal value.

In the downstream, deal value surged 30 percent to US$65.9 billion, with fewer but larger deals. Last year’s value was more than double the US$28.8 billion average annual deal values over the past five years. The U.S. and Europe dominated deals here.

In the oilfield services sector, deal value soared 106 percent to US$53 billion.

For 2017, EY expects a stronger year for downstream deals motivated by integrating upstream and downstream to create value. In oilfield services, continued financial stress and overcapacity could lead to further consolidation this year. Financially healthy and well-positioned companies and investors could seek consolidation via opportunistic acquisition of distressed assets, strategic acquisitions or combinations, or footprint and portfolio repositioning, EY said.

By Tsvetana Paraskova for Oilprice.com

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