Biden launched wave of consolidation in U.S. shale patch
Consolidation is a struggling industry’s best friend – and last year’s pandemic oil and gas crisis was no exception. Mergers and acquisitions started later than they normally do during an industry downturn, but we’ve seen some big deals nonetheless. Now the trend of mergers and acquisitions is expected to continue, according to the latest reports. First, energy data analytics firm Enverus released its regular M&A report this week. report for the first half of the year, saying that despite a slow start to the year, negotiations accelerated in the second quarter. The total value of deals closed in this quarter reached $ 33 billion, Enverus said, adding that this was spread across 40 deals, seven of which were worth more than $ 1 billion.
For comparison, in the first quarter of the year, upstream transactions totaled $ 3.4 billion, according to a precedent. report by Enverus. The value of transactions in the first quarter was up from $ 600 million for the first quarter of 2020, but was significantly lower than the $ 27.8 billion of transactions recorded for the fourth quarter of 2020.
There are also indications that the consolidation drive will only gain momentum in the second half of the year, and not just because oil prices are higher. This reflects a broader trend of mergers and acquisitions in the United States, initiated by the Biden administration.
Last Friday, President Biden sign an executive order aimed at improving competition in the US economy. Among the stipulations of the ordinance was one that calls for increased regulatory control of mergers and acquisitions in the future. While the main targets for the order may be the tech and healthcare sector, both of which have seen a deal frenzy as Reuters called it, all industries will indeed be under closer scrutiny.
Related: Qatar: Peak Natural Gas Demand Expected To Occur Around 2040 “The ordinance itself will be less likely to have a deterrent effect on strategic mergers and acquisitions than the potential deterrent effect of a significant increase in the number of protracted investigations and merger challenges brought by the agencies.” a legal insider told Reuters in comments on the order and its implications.
This suggests that the appetite for mergers and acquisitions will likely wane before too long, but before that, companies will close as many deals as possible, especially since borrowing costs are still low. These borrowing costs will also rise, according to the latest comments from senior Fed officials, all of which seem to point to an imminent start of the liquidation of central bank bond purchases that were aimed at supporting the economy. at the height of the crisis.
Setting aside general M&A trends and their causes, an interesting thing about this year’s acquisitions in oil and gas is the shift from public to private targets, according to the Enverus report.
Last year, the firm noted, most of the acquisitions were made between public companies. This year, state-owned companies are targeting privately funded independents. The buyout of DoublePoint Energy by Pioneer Natural Resources for $ 6.4 billion is one example, and the acquisition of Alta Resources by EQT for $ 2.9 billion is another.
“The surge in acquisition activity targeting privately backed E&P is probably a welcome relief for sponsors who have struggled to find exit opportunities in recent years,” said Andrew Dittmar, senior analyst for private equity. Enverus mergers and acquisitions. “Agreements targeting private E&P are less about cost reduction synergies and more about adding inventory. This could be in the welcome pool of a buyer, like Pioneer / DoublePoint, or move into a new area like Southwestern l ‘did by acquiring Indigo in the Haynesville Shale. “
Related: EIA Inventory Report Raises Oil Prices
A greater buying appetite is good news for independent oil and gas private equity owners in light of Biden’s new executive order as well. News commentators noted that the order may make it more difficult for private equity firms to sell companies they acquired earlier and invested in due to closer scrutiny. On the other hand, private equity firms are less scrutinized as buyers and can therefore start buying oil and gas again.
Adding inventory is not the only concern of current oil and gas buyers. Environmental, social and governance considerations are also high on the priority list this time around, according to data from Enverus.
“You see them talking almost as much about ESG as they are about cash flow,” Dittmar Told David Blackmon of Forbes. “This is important for investors and they want transactions to be essentially ‘ESG reproductive’. I think this definitely directs buyers to companies that are already doing a good job of meeting their ESG goals and that have types of assets that are going to be manageable according to their own goals.
It is therefore likely that we will see more mergers and acquisitions in the oil and gas sector by the end of the year, unless the grim warnings of another wave of Covid-19 infections fail. materialize, which would once again depress all industries. Still, the chances of that happening are relatively low given vaccination rates in the United States, so the oil and gas industry is expected to end the year with perhaps far fewer players than it does. ‘had begun.
By Irina Slav for Oil Octobers
More reads on Oil Octobers: