Author: Eoin Coyne

M&A Q2 spending significantly higher than five-year average in upstream sector

Total upstream oil and gas M&A spending during the second quarter was 13.5% higher than the five-year quarterly average, with 79% of deal activity focused on assets in the United States and Canada.

$36 billion in new deals were announced worldwide – the highest quarterly spend since 2021, according to the latest Evaluate Energy analysis. For more on our M&A database, click here.

Key observations:

  • Eight of the top 10 deals by value were oil-focused acquisitions
  • Payback multiples are low: median EBITDA multiples were 2.7x compared to 7x over the past decade.
    • This suggests the market has little faith in the current high earnings environment continuing in the medium- to long-term.
  • High value corporate acquisitions by publicly listed companies are becoming increasingly cash-based
  • 79% of total deal activity by value was focused on U.S. and Canadian assets
    • Chevron acquisition of PDC Energy was the largest deal (see below)
    • TotalEnergies exited the Canadian oilsands as ConocoPhillips’ exercised its pre-emptive right to take the remaining 50% stake in Surmont for US$3 billion
    • TotalEnergies had originally agreed the full sale of its TotalEnergies EP Canada subsidiary to Suncor, which will now proceed for US$1.1 billion without Surmont
  • 1.5 million boe/d changed hands this quarter, the highest volume since 2020

This activity was against a backdrop of falling oil and gas prices:

  • WTI fell for a fourth consecutive quarter and averaged $73.82/bbl
  • Henry Hub averaged $2.05/mcf, a 20% decline on Q1 2023

Share premiums stay low in the U.S.

Chevron’s acquisition of PDC in the DJ Basin continued the post-pandemic trend (post-Q1 2020) of lower share premiums being paid as part of large corporate mergers.

The $7.6 billion deal represents a share premium of just 11% – higher than premiums seen in 2020, but still lower than historical premiums for equivalent deals.

Share premium analysis: U.S. corporate mergers 2017 – 2023 

Top 5 mergers pre- and post-Q1 2020

Chevron’s history in the DJ Basin

The DJ Basin is now one of Chevron’s main areas of domestic U.S. operations.

It had originally targeted the basin with a bid to acquire Anadarko Petroleum in 2019, but lost out to Occidental in a bidding war that saw Anadarko acquired at a share premium of 64%* based on prices at the time of Chevron’s initial bid.

Since then and since the pandemic, Chevron has followed up an 8% premium acquisition of Noble Energy with this 11% PDC deal to now hold more acres in the DJ Basin than it would have done via any deal to acquire Anadarko.

Top 10 upstream deals worldwide – Q2 2023

Evaluate Energy’s M&A database holds every upstream deal worldwide since 2008, allowing daily comparisons of key metrics, corporate valuations and changes in spending behavior over time. For more on our data, which also includes data on downstream, midstream, service sector and renewable energy M&A activity, click the button below. 

 

*Premium measured using Anadarko share price on the day before Chevron’s original offer and the eventual deal value of Occidental’s completed takeover bid.

 

Return to https://blog.evaluateenergy.com for more from Evaluate Energy

 

 

Seismic demand drops will shift oil and gas views on green M&A deals

The seismic shift in energy demand witnessed during COVID-19 is altering the mind-set of oil companies – shifting the motivation for green investment decisions to hard-wired financial gain.

It’s important to note that COVID-19 has impacted the capacity of new project finance and capital expenditure budgets to back new renewable assets coming onstream in the short term.

With the third oil price shock in the past decade, fragile future OPEC support and the ethical investing movement having a tangible affect on oil equities, the argument for diversification by traditional oil and gas producers into renewable energy is hard to ignore.

As global energy demand looks set for fundamental change, government rescue packages like the EU’s €500 billion support for low carbon energy will alter the competitive landscape for renewable energy.

Producers are not pulling back on their climate goals, so, with new future capacity coming on-stream, there could be medium-term appetite to go after green M&A to ensure delivery of energy transition commitments.

Evaluate Energy’s M&A database helps you to keep track of every renewable power and green energy sector deal around the world. 

We expect new entrants into the green industry will need to circumvent significant engineering, regulatory and operational knowledge gaps by buying brownfield assets. Acquiring on-stream renewable assets with existing and proven economics can de-risk an investment compared to entering at the greenfield level. It can also provide the chance to bring in new knowledge and service ecosystems – reducing the steepness of the knowledge curve.

Companies like Royal Dutch Shell, through its North Sea operations, leverage regional service and supply chain efficiency to competitively transition into greenfield renewable asset builds. Many oil and gas companies, however, won’t be as well positioned geographically or as well connected to the required renewable service chain.

Green assets will also remain in direct competition with cut-price oil and gas assets from distressed sellers.

The medium and long term return on investment forecasts will continue to be a prime driver of capital allocation for energy companies. The mandate of companies to return maximum value to shareholders will remain a priority.

For more on our M&A database and the renewable energy sector deals we cover, please click here.

Global upstream M&A hits $41.7 billion in Q3 2017

Evaluate Energy’s latest M&A report shows that the third quarter witnessed $41.7 billion of new upstream oil and gas M&A deals. This is a 50% increase in total spending compared to Q2 2017 and it is also just above the average quarterly spend of $39.8 billion since the oil price downturn began in late 2014. Download the full report here.

The largest deals this quarter included, among others:

  • Russia’s Rosneft, which saw a significant change in its ownership structure for the second time in twelve months
  • France’s Total, which agreed a deal with Denmark’s Maersk that will see the Danish company exit the E&P sector entirely
  • Canada’s Cenovus Energy, which continued its plan to balance the books after its huge oilsands acquisition in Q1 by agreeing two major sales in September

Meanwhile, in the U.S., the Permian Basin still dominates U.S. activity in 2017 despite a second consecutive quiet quarter of deals, in which the STACK formation and Williston Basin saw the country’s biggest deals.

For analysis on all the major deals this quarter, download the Evaluate Energy Q3 2017 upstream M&A review here.

Global upstream oil and gas M&A hits $24.1 billion in Q3 2016

Spending broadly keeps pace with previous quarter

In Q3 2016, there was $24.1 billion of new upstream oil and gas M&A deals, according to Evaluate Energy’s most recent quarterly review of upstream M&A activity. The report, which delves into every major deal around the world in Q3 2016, is available for download now.

This quarter’s total deal value falls just short of the $26.5 billion spend in Q2 2016, but marks an increase compared with the $17.7 billion spend in Q3 2015, according to Evaluate Energy’s report.

The backdrop for the quarter was of a WTI oil price that averaged $44.74, marginally down on the average of $45.58 during Q2 2016 but with much less volatility; the oil price never breached $50 and only once closed a day lower than $40 in the entire three month period.

MA_Q3_2016_Chart_3

Source: Evaluate Energy Upstream M&A Review, Q3 2016

In the main, deals were targeted in areas with the best short to medium term reward:

  • The Permian basin, economically one of the best in the United States due to its multi-stacked pay zones, attracted 34% of the total spend during the quarter, with 10 of the deals in the basin this quarter being agreed for over $100 million.
  • The Marcellus play, which is proving to be amongst the most economic gas plays in the United States, attracted the largest deal of the quarter when Rice Energy Inc. acquired Vantage Energy LLC for $2.8 billion.

As usual, the United States saw the bulk of the deal value, but the biggest Canadian deal of 2016 also took place in Q3 2016, while Statoil ASA agreed a significant deal in Brazil with Petrobras over the Carcara pre-salt oil discovery.

Top 5 upstream deals around the world in Q3 2016

MA_Q3_2016_Table_2

Source: Evaluate Energy Upstream M&A Review, Q3 2016

CTA_MA-Q3-2016

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More Montney assets hit market in wake of Seven Generations’ Cdn$1.9bn deal

Two Canadian producers are seeking to capitalize on the enduring pulling power of the Montney play by putting assets up for sale, according to CanOils’ newest report focused on M&A activity in August.

RMP Energy Inc. (TSX:RMP) and Chinook Energy Inc. (TSX:CKE) have healthy balance sheets and a good inventory of development assets. Both have extensive holdings in the Montney shale. They form the bedrock of the total 12,700 boe/d of publicly disclosed Canadian assets put up for sale in August 2016. The listings follow the recent Cdn$1.9 billion acquisition by Seven Generations Energy Ltd.’s (TSX:VII) of predominantly Montney assets from Paramount Resources Ltd (TSX:POU), which showed Montney assets can still attract strong interest for high value deals.

RMP Energy Inc.

The largest Canadian asset listing in August involved RMP Energy initiating a strategic alternatives process, retaining Scotia Waterous and FirstEnergy Capital Corp. The majority of RMP’s production is derived from the Ante Creek and Waskahigan fields. RMP produces 8,425 boe/d (43% liquids) based on Q2 2016 production figures. The company owns 24.6 million boe of 1P reserves (36% liquids).

Active RMP Energy Inc. wells as of July 31, 2016

RMP

Source: CanOils Monthly M&A Review, August 2016

Chinook Energy Inc.

Chinook Energy Inc. has also initiated a strategic alternatives review and has retained Peters & Co. as its exclusive financial advisor. Chinook is predominantly Montney-focused with 2,890 boe/d of production during Q2 2016 and 12.9 million boe (16% liquids) of 1P reserves. Chinook said it is open to expanding its core operations via acquisitions or by establishing a new core of operations. They will also entertain a merger, sale or JV with a well-capitalized entity to help develop existing assets.

Also this month…

Away from the Montney, August saw Virginia Hills Oil Corp. (TSX-V:VHO) initiate its own strategic review process, while Grant Thornton, in its role as receiver for RedWater Energy Corp., retained CB Securities to advise in the sale of a portion of RedWater’s assets.

Full details on all of these assets up for sale, as well as a detailed look into all of August’s biggest M&A stories, can be found in CanOils’ latest monthly M&A review of the Canadian E&P industry, which is available for download now.

cta_ma_aug_2016

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Global Upstream Oil & Gas M&A Reaches $25.6 Billion in Q2 2016

Total global spend on upstream M&A deals rose an encouraging 38% in the second quarter, driven by improved oil prices and market confidence, according to Evaluate Energy’s review of global upstream oil and gas M&A activity in Q2 2016, which can be downloaded now.

Oil exceeded $50 a barrel during Q2 – the first time it has done so since July 2015. This is clearly a principal driver of M&A activity; should prices continue to rise, we would anticipate deals to follow.

Q2 upstream deals were worth a combined $25.6 billion, according to our latest data, compared to $18.5 billion in Q1. Yes, banks remain wary of over-committing on oil assets, but several companies are acting now rather than waiting for further rises in prices and asset values.

Download the full report here for details on all the major deals, the motivation behind them, exclusive analysis and a brief outlook for the rest of 2016.

Q2_2016_Deals_Chart

Source: Evaluate Energy Q2 2016 Upstream M&A Review

Top 10 upstream deals in Q2 2016

Q2_2016_Deals_Table

Source: Evaluate Energy Q2 2016 Upstream M&A Review

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Global Upstream Oil & Gas M&A Reaches $163 Billion in 2015

Despite a tumultuous year where a challenging oil price instigated a mass cull of investment in the industry, the overall M&A spend in the upstream sector still reached a credible $163 billion during 2015, according to Evaluate Energy’s Annual M&A Review for 2015, which is available for download now.

Source: Evaluate Energy M&A Review of 2015

2015 marked the first full year since Saudi Arabia ramped up production and allowed free market forces to dictate the price of oil. The oil price as per the WTI benchmark subsequently traded between $34.55 and $61.36 during 2015, averaged at $48.79 and ended the year at $36.36.

This $163 billion figure represents only a 4% drop on the total recorded by Evaluate Energy during 2014 and a 10% increase on the 2013 total, which, on the face of it, does not seem too significant of an upheaval following the crash in prices. However, a great deal of this $163 billion is represented by Royal Dutch Shell’s $84 billion takeover for BG Group that was agreed in the second quarter. So, while production actually went against many predictions and did not fall dramatically following 2014’s price collapse, the upstream M&A market did falter, with many unfortunate, highly-leveraged companies being forced to focus on survival rather than M&A or expansion strategies.

For a full, in-depth review of 2015’s M&A activity in the upstream oil and gas sector, download the full M&A review from Evaluate Energy at this link.

Inside the Evaluate Energy M&A Review of 2015:

  • Why 2015 saw a series of high-profile corporate takeover bids rejected
  • The extent to which deal activity actually dropped in 2015 after the price collapse
  • How U.S. shale M&A activity fell to its lowest level since 2009
  • Expectations for 2016 in the upstream oil and gas M&A arena

Download Report

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