Oil and gas proved a bright spot in the 2010 merger and acquisition landscape, according to Ernst & Young. Total industry transaction value topped $266 billion, up 33% from 2009. Total deal activity was up 13% from 2009, with deals reported having values that were up 2%. Midstream deals were up 71% to $25 billion. The total number of transactions in the segment was 57, up 4% from 2009.
Availability of capital, strong oil prices, and an emphasis on portfolio rationalization to position companies for the next market cycle drove the increases in 2010. For 2011, with gas prices depressed, investors will be looking for gas plays with strong liquid content while ongoing regulatory and legislative uncertainty will slow the pace of negotiations. Still EY’s transactions lead Jon McCarter expects continued strong activity.
He projects deals in 2011 will be driven and characterized by:
1. Liquidity returning to the markets and making deals possible.
2. Depressed gas prices causing a shift in spending from gas to oil.
3. The shale gas revolution fundamentally changing the long-term outlook for natural gas.
4. Companies with intellectual property or developing technologies (including horizontal drilling) being in high demand.
5. Significant interest from global players like Korea, China, Japan and India, focusing on shale plays and the oil sands.
6. Regulations driving larger scale.
7. Strategic buyers with large amounts of cash and a need to grow being the main acquirers.
8. Heightened and ongoing environmental risks factoring into impending deals and making meticulous due diligence the new standard.
9. Cost and risk sharing through strategic partnerships and joint ventures.
10. Private equity, under pressure to deploy or repatriate capital, spurring additional M&A activity.