Full Title: Deloitte Oil & Gas Mergers and Acquisitions Report – 2015 Update
Author(s): Deloitte Center for Energy Solutions
Publisher(s): Deloitte Center for Energy Solutions
Publication Date: September 1, 2015
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Description (excerpt):
This paper discusses the merger and acquisition (M&A) market in the oil and gas industry in 2015, covering both what has happened so far and what appear to be the emerging trends for the rest of this year and into early 2016. While the aggregate activity level, both in terms of number of transactions and overall value, recovered somewhat in the second quarter, relative to the first quarter of 2015, one large international deal accounted for all of this upturn—the announcement of the acquisition of BG Group (BG) by Royal Dutch Shell (Shell). This transaction was valued at around $80 billion and is primarily designed to strategically grow a dominant position in global LNG and to bring Shell a larger presence in high-potential offshore fields in Brazil.1 Without this transaction, overall M&A deal value was relatively low compared to the past several years. The industry appears to be in a holding pattern, while the implications and impacts of the oil price downturn play out. While expectations of a short-lived, low-price environment persisted through the end of 2014, acceptance of the lower pricing environment began to grow over the course of 2015, resulting in market participants retrenching, cutting costs, and delaying capital projects to conserve cash. In some cases, production has been accelerated to boost cash flows (and remaining hedged positions continue to provide support). In this period of uncertainty and adjustment, it has been easy for value gaps to persist, where potential sellers placed premium values on attractive assets, while potential buyers did not yet see the bargains they were anticipating. At the same time, lenders to the industry did not, to any great extent, seek radical corrective action during the spring redetermination of borrowing bases that might have increased the pressure on highly leveraged companies to sell assets. We have also seen examples of North American producers being able to tap into equity markets as an alternative to rolling over debt or raising new debt. This strategy helps sustain activity through the downturn without further weakening of balance sheets, but could be risky if the dilution effect depresses stock prices.