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U.S. Oil & Gas Deal Flow Reaches Highest Level Since 2014

Higher and more stable oil prices, corporate restructurings, and investors warming to the idea of longer-term investment sent the U.S. oil and gas deals value to a near-record US$122.8 billion in the third quarter of 2018, the highest deal value since a record high Q3 2014, PwC said in its quarterly deals insights report on Thursday.

The record high third quarter of 2014 saw a total of US$125.7 billion worth of deals struck.

While the volume of the deals was slightly higher quarter-on-quarter and within the historic average trends, the average deal value hit record highs in Q3, PwC said, noting that 82 percent of the deal value was driven by mega deals. A large part of those mega deals were affiliate transactions, which continued to be led by midstream companies restructuring the so-called master limited partnerships (MLP).

“Investors appear to be seeking midstream assets to alleviate operational bottlenecks, related to takeaway capacity, specifically in areas where production continues to ramp up,” PwC said.

The total Q3 deal value—the highest since oil prices were $100 a barrel back in 2014—jumped by 73 percent compared to the second quarter and by a whopping 420 percent compared to the third quarter of 2017, PwC’s analysis showed.

Midstream mega deals of US$80.7 billion generated much of the Q3 deal value, while upstream deals accounted for 60 percent of the deal volume and had two mega deals worth a total of US$19.9 billion: BP/BHP and Diamondback/Energen.

Shale continued to be a major contributor to deal-making, with the Permian regaining its leading position with five upstream deals worth US$11.5 billion, after giving way to the Bakken and Marcellus in Q2.

“After several quarters of portfolio rationalizations driven by a focus on immediate returns, capital discipline and operating within existing cash flow, we are starting to see investors warm to the idea of longer term investments. Valuations have become advantageous enough for strategic and financial investors to make additions to their portfolios, especially in areas that promote operational efficiency and significant future cash flow,” said Seenu Akunuri, US Oil & Gas Valuation Practice Leader, PwC.

By Tsvetana Paraskova for Oilprice.coma

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