Shale sector M&A – Will declining valuations spark an uptick in deals?

Shale sector M&A

With plummeting energy costs dealing a heavy blow to many shale operators over the past year, the shale sector may strike some as ripe for M&A as companies and investors with access to capital look for bargains in the wake of the slump. While there hasn’t been a dramatic surge in shale M&A to this point, there was a modest uptick in M&A activity in the sector in the first part of 2016. A major factor preventing a dramatic increase in such activity, according to a report by KPMG, is the disparity between buyer and seller value expectations – with valuations much lower than they were just a couple years ago, as measured by the markets for energy company bonds and stocks, it appears sellers’ perceptions of value have not yet caught up to this new reality.

Shale M&A in 2016

While overall oil and gas mergers and acquisitions stayed steady in the first quarter of 2016, with 39 announced deals in 2016 equaling the 39 deals announced in first quarter of 2015 according to professional services firm PwC US (albeit totaling a lower dollar amount than 2015: $28 billion vs $34.4 billion), the pace of M&A among shale companies actually increased in comparison with the same period in 2015.

In PwC’s quarterly Oil & Gas M&A analysis, the firm reported that 15 shale-related deals amounting to $5.6 billion in value occurred in the first quarter of 2016. Compared with 2015’s first quarter, this represented a 5% uptick in the value of deals done and a 67% increase in the amount of deals. 13 of these deals worth a total of $3.5 billion were in the upstream sector, representing a 68% increase in deal volume and 39% increase in deal value from the first quarter of 2015 for the sector.

Magazine Issue 4 Cover
The full article, by Mark Tygart, is available in Issue 4 of Shale Gas International Magazine and can be found on page 15.