Oil And Gas M&A Deals Crash Along With Prices

A new report from Enverus (formerly DrillingInfo) shows that mergers and acquisitions activity within the oil and gas industry crashed during the first quarter along with the price for crude oil. The report details just $770 million in domestic M&A activity, less than 1/10th of the average quarterly activity seen in the industry over the previous ten years.

“Even before oil prices collapsed on COVID-related demand issues and the surge in global production led by Saudi Arabia, M&A markets were highly challenged,” commented Enverus Senior M&A Analyst Andrew Dittmar. “Responding to Wall Street pressures, E&Ps had slashed spending and refocused from growth to cash flow dampening the appetite for acquisitions.”

The largest dollar transaction Enverus was able to track for Q1 was a deal by Alpine Energy Capital to purchase assets in the Midland Basin from Approach Resources for $193 million. Otherwise, the report details just four other deals totaling $577 million. This pales in comparison to the pursuit of Anadarko Petroleum last spring by both Chevron and Occidental Petroleum (Oxy), a deal won by Oxy for the price of $55 billion. Ironically, Chevron would be able to acquire the combined Oxy/Anadarko at today’s current market capitalization for much less than Oxy paid to win that deal.

The report comes as little surprise to knowledgeable observers. It makes little sense for potential acquiring companies to seek new acquisitions during a time of massive volatility and uncertainty about where the industry is headed over the next several months. Companies with healthy balance sheets will likely be able to weather the current storm and possibly be able to pick up prime assets for pennies on the dollar of what they would have had to pay during 2019.

Enverus sees those healthier U.S. producers, along with foreign buyers and private and institutional capital as potential acquirers once the market settles into some level of stability. “As painful as the downturn is, this may finally push the industry into healthy consolidation that leaves us with larger, more efficient, and better capitalized operators when the recovery starts,” said Dittmar. “These buyers will likely have opportunities to acquire high-quality assets that might have been viewed as too expensive before the downturn.”

When that relative stability will come about, however, is anyone’s guess. At his daily Coronavirus Task Force update on Wednesday, President Donald Trump talked about discussions he has had this week with both Russian President Vladimir Putin and Saudi Arabian leader Mohammed bin Salman, saying that he expects those countries to reach some sort of accommodation “in a few days.” What form such an an accommodation might take and what effect it might have on a market that has suffered such a massive loss of global demand this year remains to be seen.

The U.S. President also told reporters that he will be meeting with leaders in the oil and gas industry over the next few days to discuss ways in which the federal government might move to try to head off the looming collapse of so many companies. "I'm going to meet with the oil producers on Friday. I'm going to meet with independent oil producers also on Friday or Saturday. Maybe Sunday. We're going to have a lot of meetings on it," Trump told reporters.

But with the U.S. industry still divided among itself, and the OPEC ministers not even able to agree to call a special meeting to address the situation, hopes for any sort of near-term deal that would have a major impact appear dim. Thus, we can expect potential acquiring companies to keep sitting on the sidelines as little more than interested observers awaiting the time when they can jump in and pick up desirable assets for a comparative song.

Source: Forbes