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Although the number of oil and gas deals in the U.S. rose in the third quarter, their total value dropped substantially as companies are seeking smaller, bolt-on acquisitions to fine-tune and rationalize their portfolios after the period of big transformational mega-deals, PwC said in its Q3 2017 quarterly US Oil & Gas deals report.
The deals in the third quarter highlighted two notable trends—drillers have started to focus on smaller, non-transformational asset deals that would complement their existing assets and infrastructure, and investors have been looking beyond the Permian for more favorable acquisition terms, according to PwC.
The U.S. oil and gas industry announced 53 deals in Q3, up by 6 percent on the quarter and 13 percent on the year. But the total value of those deals slumped by 36 percent sequentially and by 58 percent annually, to come in at US$23.61 billion.
Mega deals, such of value higher than US$1 billion each, continued to drop in number—a trend that started in Q1 2017, PwC said. A total of seven mega deals were made in Q3, worth a combined US$11.74 billion, which was the lowest share of total deal value and volume since Q2 2016.
“We see deal activity moving away from Permian where core acreage transactions appear to have run their course, and more towards other plays such as Eagle Ford, and Bakken which are supported by stabilizing oil prices,” said Mile Milisavljevic, PwC US Oil & Gas Deals Strategy Principal.
In Q3, three deals closed in the Permian, worth US$1.48 billion in total. In comparison, the Anadarko basin saw the most active shale-deal making with 6 deals worth a total of US$3.94 billion. Deals in the Bakken and Eagle Ford each numbered five, worth US$4.86 billion and US$698 million, respectively.
“We see this shift not as a reflection of problems in the Permian, but rather of success, as significant deal-making in the basin has pushed prices higher than they were prior to the commodity price crash,” PwC noted.
In Q1 2017, U.S. oil and gas mergers and acquisitions hit a record high value for a first quarter, boosted by a wave of mega deals and the attractive Permian basin.
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In Q2, deal making slowed down from the first quarter’s ultra-high level but stayed relatively strong in historical terms. The US$37.01 billion worth of deals was the third highest Q2 deal value of the past eight years.
Looking ahead, PwC expects Q4 to be “more of the same” like Q3, with M&A activity expected higher, as typically investors want to close deals by year end.
Doug Meier, Greater Texas Deals Leader, said, commenting on the Q3 deals:
“The third quarter was a solid quarter from a volume perspective, but the lack of transformational deals indicates that companies are reigning in their risk appetite and focusing on niche deals.”
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.