Upstream M&A falters in Q1 2022 high price environment

Agreeing M&A deals has proven to be difficult for E&P companies in early 2022.

Upstream Q1 deal values are 47% down on the five-year quarterly average as rising commodity prices alter the market dynamic for buyers and sellers, according to new analysis.

Evaluate Energy’s latest M&A report – available for free download here – shows that just $19 billion in new upstream deals were agreed in Q1. This represents a significant decline in activity despite surging oil and gas prices and continued relaxations of Covid restrictions around the world. Q1 saw WTI hit a peak of $123 per barrel, while gas prices rose sixfold in parts of Europe.

“The prices have created a market where buyers and sellers are reluctant to act. Total deal values are 54% down on the prior quarter and 47% down on the five-year quarterly average,” said Eoin Coyne, Senior M&A Analyst at Evaluate Energy and report co-author.

“Deal counts also fell significantly. Potential selling companies have lacked impetus to part with assets contributing to healthy profits unless a very strong offer is delivered, while buyers are wary to match valuations at what is potentially the top of a price cycle.”

Evaluate Energy’s latest M&A report provides further analysis on the impasse between buyers and sellers in the current market, as well as information on the key deals that were agreed in Q1.

Included in the report:

  • U.S. deals dominate the global deal value with Permian assets popular targets
  • Private companies are cashing in on U.S. assets acquired during the downturn
  • Two supermajors realign their African portfolio in deals totaling around $2 billion
  • Canada’s activity limited in tough market, with Vermilion agreeing the only +$100 million deal

Oil and gas producers making deals across the green energy space

Solar, wind energy and hydrogen projects attracted significant deal interest from companies traditionally focused on upstream oil and gas in 2021 – a year that saw major upstream investment across the entire green energy space.

A new mergers and acquisitions report from Evaluate Energy shows that while wind and solar assets continued to attract greater levels of interest from E&P investors in terms of pure deal count – 56% of the 81 deals agreed – a growing number of deals were agreed in less well-established industries.

“2021 saw a greater number of emerging sectors gain traction among oil and gas players,” said Mark Young, report co-author and Senior Analyst at Evaluate Energy. “In terms of highlights away from wind and solar, we saw eight deals made relating to hydrogen production projects and six deals apiece in the electric vehicle charging and biofuels spaces.

“Investor and public pressures to diversify portfolios has led to oil and gas producers spreading into all sorts of new low-carbon technologies and innovative or renewable energy producing projects around the world.

“We would expect this trend to continue, especially with many producers recently going public with ambitious net zero targets for this decade and beyond.”

For more detail on 2021 green energy deals, as well as investments made by the most active E&P companies in green energy – such as Shell, Eni, TotalEnergies, BP and Chevron – download Evaluate Energy’s latest M&A report at the link below.

New ESG learning platform delivers vital insights for O&G leaders and teams

A new ESG learning platform is providing the skills and tools to fill a vital knowledge gap in the oil and gas industry.

Launched this week, Evaluate Energy ESG Learning offers on-demand and live courses delivered by leading experts in oil and gas. The new platform reflects a desire among employers to build ESG capability throughout their organizations. Executives and front-line staff are seeking new ‘ESG skills’ to support businesses and position them for long-term growth.

“The O&G industry has the most complicated ESG challenges of any industry,” said Bemal Mehta, Managing Director, Energy Intelligence, Evaluate Energy. “Organizations like the World Energy Council call this the Energy Trilemma: balancing energy security, energy equity and environmental sustainability. Our learning platform provides the knowledge and practical tools to address the unique ESG issues facing operators.”

Evaluate Energy ESG Learning is the first education platform designed for the O&G industry with its fit-for-purpose curriculum approach, said Mehta.

On-demand and live courses provide the knowledge to support strategic and operational ESG efforts. Foundational and advanced course options are available.​ Courses relevant to specific oil and gas geographies and regulatory environments will also be provided.

“Many companies are yet to acquire the full complement of ESG skills to navigate this dynamic and challenging environment,” said Mehta. “They will need to provide their teams with leading-edge skills and knowledge.”

Courses are developed with extensive participation and consultation with organizations leading ESG efforts.

The first on-demand course is ‘ESG Essentials’ for O&G Executives. Click here for the course summary and pricing.

Find the ideal course for you and your team here: Evaluate Energy | E-Learning

Over 4 million boe/d of production traded as deal values bounce back in 2021

Global upstream deal values within oil and gas returned to pre-pandemic levels in 2021, while the largest volume of production changed hands in more than a decade, according to new data from Evaluate Energy.

The recovery in M&A was driven by rising demand and prices following a year of under-investment in new supply, said Eoin Coyne, Evaluate Energy’s senior M&A analyst.

“2021 saw $144 billion in new upstream deals agreed,” said Coyne, co-author of Evaluate Energy’s latest annual M&A report. “This value is 53% higher than the spend in 2020 and in line with the five-year average annual spend prior to 2020.”

The report – available here – analyses the biggest deals of 2021, including green energy deals and investments agreed by traditional oil and gas majors.

“The fact that overall spend for the year was in line with the non-Covid average annual spend hides just how much upstream M&A took place in 2021,” added Coyne, who co-authored the report. “Over 4 million boe/d of production changed hands around the world, which is the largest total since Evaluate Energy began tracking M&A deals in the oil industry 14 years ago.”

Included within the report:

  • Woodside, Santos and BHP undertake multibillion-dollar international mergers
  • Pioneer, ConocoPhillips and Continental Resources make Permian acquisitions as Shell exits
  • Gas companies join the consolidation wave in the U.S.
  • Canadian deals are headlined by the merger of ARC Resources and Seven Generations, and the Cenovus asset sale program
  • Shell, Eni and Chevron are among E&P majors to make significant green energy sector investments in 2021

 

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Free cash flow continues to soar for North American producers in Q3

Record levels of free cash flow continue to be generated by North America’s oil and gas producers according to a new report from Evaluate Energy that outlines how that cash is being used.

Free cash flow – the difference between operating cash flow and capex – reached a combined $19.1 billion in Q3 2021 for a study group of 84 U.S. and Canadian producers. The full report is available at this link.

“No quarter since the start of 2018 has seen a higher total operating cash flow than Q3’s $32.5 billion, while capital spending was flat from Q2 to Q3 for the study group,” said Mark Young, report author and Senior Oil & Gas Analyst at Evaluate Energy.

Four peer groups within the report are based on whether a producer has a U.S. or Canadian headquarters plus their respective oil weightings. Canada’s five oilsands majors are separated out into a fifth peer group.

“Companies treated capex priorities very differently in Q3 compared to Q2,” Young said. “Every group we examined cut capex as a percentage of operating cash flow compared to Q2.

“Ironically, in Q2 it was almost entirely the reverse – save for U.S. oil producers, every group saw capex increase as a percentage of operating cash flow compared to Q1. Debt repayments took centre stage in Q3 instead of capital spend.”

For the combined group of 84, capital spending being flat at $13.4 billion in Q3 meant capex came in at just 41% of operating cash flow.

The report also shows how far each group used extra cash flow on repaying debt and increasing shareholder returns via dividends and share repurchase plans.

Permian Basin sees US$30 billion of upstream M&A in just 6 months

Evaluate Energy’s latest M&A report shows that between the start of April and the end of September, the Permian Basin in the United States saw almost US$30 billion in new M&A deals announced for E&P assets.

“After a bumper quarter in Q2 that saw over US$18 billion in new deals agreed, Q3 saw just under US$12 billion of its own,” said Eoin Coyne, report author and Senior Analyst at Evaluate Energy.

The vast majority of this Q3 spend came from ConocoPhillips acquiring the Permian assets of Royal Dutch Shell for US$9.5 billion in cash.

“ConocoPhillips had already made a major move with the $13 billion acquisition of Concho Resources during Q4 2020,” said Coyne. “That was an all-stock deal, so ConocoPhillips retained enough liquidity to fund this latest transaction with available cash.”

The other ~US$2.5 billion in Permian deals this quarter included deals by Callon Petroleum, Lime Rock Resources and a royalty interest acquisition by Viper Energy Partners.

For more on these deals and other U.S., Canadian and global upstream M&A activity in Q3 2021, download Evaluate Energy’s latest M&A report at this link.

Top U.S. Upstream Deals in Q3 2021 (Permian deals in bold)

Eni, Shell lead oil producers in green energy deal making in 2021

Eni and Shell have been the most active among traditional oil and gas producers when it comes to green energy sector deal making in 2021, according to a new report from Evaluate Energy.

Over the past few years, intense and consistent investor pressure over carbon usage and climate goals has prompted many E&P companies to explore options in greener energy sectors and diversify their portfolios.

Evaluate Energy’s new report includes a rundown of every upstream deal in Q3 2021 and details on green energy investments by oil and gas producers. It is available for download at this link.

Eni’s busy third quarter is the reason for its position atop the rankings.

“Four of Eni’s six green energy deals were announced between July and September,” said Mark Young, report co-author and Senior Analyst at Evaluate Energy. “These latest investments will see the company acquire Italy’s second largest operator in the electric vehicle charging space, as well as increase its European wind and solar operational capacity by over 650MW.”

Shell joins Eni with six investments made up to September 30.

“Early activity from Shell this year was also mainly focused on European markets, but its two most recent investments have both been in the U.S.,” said Young. “These two U.S. deals included the acquisition of a renewable energy residential retailer and a sustainable fuels producer.”

Details on all of Q3’s major green energy investments by Eni, Shell and other upstream companies are available as part of Evaluate Energy’s latest M&A report.

Note for chart: “Other” includes deals in the following sectors, among others: Biomethane, Geothermal, Hydro, Retail power from renewable energy, Green energy-related technology.

Upstream M&A rises to $44 billion in Q3 2021

Evaluate Energy’s latest report shows that upstream M&A spending reached $44 billion around the world during Q3 based on deals announced between July and September.

This total is:

  • 23% higher than $36 billion in Q2; and
  • 25% higher than average quarterly spending over the past five years.

Spending was supported by strong prices for oil and gas.

“Oil demand increases reflected a resurgent global economy and a relative lack of supply from either the free market or OPEC+,” said Eoin Coyne, report author and Senior Oil & Gas Analyst at Evaluate Energy. “This led to an average WTI price in Q3 of $70.23, the highest quarterly average price since 2014. Natural gas saw an even more acute imbalance. Parts of Europe saw record natural gas prices and Henry Hub price averages in the U.S. hit $4.19, an increase of 47% on the average price in Q2.”

Despite the increase in deal value on previous quarters, the overall activity level was unchanged.

“What we refer to as ‘significant deal counts’ were identical in Q3 and Q2,” Coyne said. “Thirty-five deals were valued at greater than $50 million in both quarters. Larger corporate deals and higher valuations for asset deals due to increased oil and gas prices accounted for the overall higher deal value in Q3.”

Evaluate Energy’s M&A report for Q3 2021 includes analysis on the following:

  • Permian Basin deals involving Shell, ConocoPhillips, Callon Petroleum and more
  • Spartan Delta’s continued growth in Canada and a recent spike in royalty interest acquisitions involving Topaz Energy and PrairieSky
  • Multibillion-dollar deals affecting the natural gas industry in Australia and Brazil’s ultra-deepwater oilfields
  • Green energy sector deals involving Shell, BP, Eni and Galp

Oilsands majors accrue $7.8 billion in free cash flow in H1 2021

Canada’s oilsands majors continue to generate huge amounts of free cash flow in 2021.

Higher commodity prices in the first half of 2021, coupled with a slow return to pre-pandemic levels of capital spending, has resulted in operating cash flow significantly outweighing capital budgets for many producers across the U.S. and Canadian upstream sectors this year.

This is especially true in the Canadian oilsands, with Canadian Natural Resources, Cenovus Energy, Imperial Oil, MEG Energy and Suncor Energy recording a combined free cash flow of $7.8 billion in the first half of the year.

This analysis is part of a new Evaluate Energy report on key cash flow and capital management trends across the North American upstream sector. Access the report here.

While it is not unusual for oilsands producers to generate billions in free cash flow, these 2021 values remain highly significant. Only three financial quarters between the start of 2018 and the beginning of the pandemic in Q1 2020 saw values higher than the free cash flow recorded in either Q1 or Q2 2021.

Despite this recent high in free cash flow, the data also shows that capital spending has now recovered to pre-pandemic levels for the five producers.

These oilsands companies never deviated far from spending $2.5-$3.5 billion each quarter before the pandemic started in Q1 2020, and Q2 2021 was the first quarter of that magnitude since. This can actually be seen across the Canadian industry, with the other 37 Canadian producers in our report recording combined Q2 capex greater than averages seen prior to the pandemic.

Evaluate Energy’s Q2 2021 cash flow review for North American oil and gas producers is available now. The report includes analysis of dividend increases, capital budget levels and debt-related spending for 86 U.S. and Canadian oil and gas producers.

Dividends increase across North American upstream industry

North American producers are refocusing on increased shareholder returns with abundant free cash flow evident across the board in Q2 2021.

This is according to Evaluate Energy’s latest review of cash spending patterns for 86 North American oil and gas producers, which can be downloaded at this link and, this quarter, includes data on dividend payments and share buybacks.

“When combining dividend payments and net share repurchases, we can see over US$4 billion spent on shareholder returns by the study group for the first time since the pandemic started in late Q1 2020,” said Mark Young, report author and Senior Analyst at Evaluate Energy. “Things are moving slowly but latest data reveals a renewed, concerted effort by producers to return increased earnings to shareholders.”

A jump from just over US$2 billion in total shareholder returns in Q1 to around US$4 billion three months later may not appear all that gradual – this is because two oilsands producers skew the analysis.

“Imperial and Suncor are alone responsible for 80% of 2021’s total buybacks so far. The data may suggest a sudden jump in spending across the board, but these two companies are an anomaly when it comes to the whole group, at least up to the end of June.

“Where we really see more widespread increases in shareholder returns is in dividend per share data, even if the dollar values fail to jump off the page,” said Young.

As the pandemic took hold, the number of companies declaring a quarterly dividend fell sharply from 29 in Q1 2020 to just 20 in Q2 2020. As well as those nine companies that stopped paying dividends entirely, eight more reduced quarterly distributions as cash tightened.

Q1 and Q2 2021 witnessed a recovery – particularly among oil producers who comprised the bulk of North America’s dividend-paying producers before the pandemic.

  • By the end of June, 28 of the study group were paying dividends. Q1 and Q2 both saw 12 companies increase dividends per share from the previous quarter
  • Cash used for dividends since the start of Q3 2020 increased by an average of US$276 million per quarter for the whole group.

“This US$276 million increase may seem insignificant when billions are being spent on capital budgets and debt repayments, but individual investors will likely approve,” said Young.

Evaluate Energy’s Q2 2021 cash flow review for North American oil and gas producers is available for download now. The report also includes a look at remaining capital budget levels for 2021 and debt-related spending for all 86 companies.