Energy dealmaking is fueled by oil and power
Oil & gas dealmaking continues to generate the bulk of sector activity; consolidation in the power sector was driven by unsettled market conditions.
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Percentage decrease in deal value compared to 2016
M&A in the energy sector has taken a hit in 2017, with value dropping 20.5 percent to US$260.2 billion. Volume remained relatively stable, decreasing a modest 4.7 percent to 442 transactions. However, while overall value may be down year-on-year, oil & gas and electrical power delivered some sizable deals this year.
Midstream, MLPs and M&A
As oil prices settled in the US$60 to US$70 range, companies became more confident about predicting production costs. "The improving oil price should help drive M&A activity within the sector," says White & Case partner Greg Pryor. A less volatile oil price has supported a lift in acquisition activity in the Permian basin, while ongoing repositioning in the midstream sector has provided further impetus.
"A hallmark of 2017 has been the number of master limited partnership (MLP) transactions," adds Pryor. This dealmaking strategy, aimed at simplifying structures and increasing returns, resulted in the largest energy deal of the year—ONEOK Inc.’s US$17.1 billion purchase of a 60 percent stake in ONEOK Partners. This was followed by Williams Companies’ acquisition of a 32 percent stake in Williams Partners for US$11.4 billion.
The number of deals targeting the US energy sector in 2017
Power firms switch on deals
M&A within the electric power industry has been driven by challenges to organic growth, particularly for traditional power generators. Firms have turned to dealmaking as a strategy to secure long-term growth. Vistra’s decision to acquire Dynegy for US$10.7 billion was largely due to the need to consolidate.
Furthermore, cheap natural gas obtained from shale fields has driven down electricity prices, leading to a challenging wholesale pricing environment. "Firms are looking at their portfolios and asking what they have to do to achieve the results they need in the current pricing environment. That usually leads to M&A activity," says Pryor.
Regulation on the rise
Regulation is proving to be a challenge for dealmakers in the US power sector. In April, the Kansas Corporation Commission (KCC) blocked the US$12.2 billion acquisition of utility firm Westar Energy by Missouri-based Great Plains Energy, one of the largest power deals announced in 2016. The Public Utility Commission of Texas, meanwhile, blocked NextEra Energy’s US$18.4 billion bid for Oncor Electric Delivery. This regulatory scrutiny is a fact of life in the utility space, and savvy dealmakers must carefully strategize and be prepared to address any concerns.
TOP ENERGY, MINING & UTILITIES, DEALS 2017
1. Sempra Energy agreed to acquire Energy Future Holdings Corp. for US$18.9 billion
2. Marathon Petroleum Corporation agreed to acquire MXLP LP (40.32 percent stake) for US$17.3 billion
3. ONEOK, Inc. bought ONEOK Partners, L.P. (60 percent stake) for US$17.1 billion
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