Navigating change: US M&A H1 2018

Oil & gas M&A gains cautious ground

A steadying oil price signals a brighter future for oil & gas M&A, yet market caution remains

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Following an uncertain period for dealmaking, a recovering oil price has helped revive oil & gas M&A activity in the first half of 2018. With the Brent crude oil price climbing from less than US$50 a barrel a year ago to close to US$70 a barrel today, US oil & gas assets have seen three consecutive quarterly rises in deal value, climbing 34 percent from H2 2017 to US$115.5 billion in the first half of the year.


Top oil & gas deals
H1 2018

1: Marathon Petroleum Corporation agreed to buy Andeavor Corporation for US$30.2 billion

2: Dominion Energy Inc. agreed to buy SCANA Corporation for US$14.3 billion

3: Williams Companies Inc. agreed to buy a 26.71% stake in Williams Partners L.P for US$10.5 billion


US$115.5 billion
The value of 139 deals targeting the US oil & gas sector in H1 2018


Road to recovery

A higher, less-volatile oil price has put oil majors in a better position to take a five- to ten-year view on their portfolios, rationalize where necessary and make decisions on which basins to commit more resources to and which basins to exit in order to release capital for investment. Chevron, Royal Dutch Shell and BP, for example, are all reportedly in the running to acquire BHP Billiton's shale assets, which could be valued at up to US$9 billion.

Oil price stability supports M&A activity as buyers and capital providers gain confidence in the possibility of an upward trend in prices. With continued backwardation, sellers may also perceive limited upside in retaining non-core assets. If these favourable conditions persist, deal activity should continue to rise.


Percentage increase in deal value compared to H2 2017


Caution remains

Despite the brighter outlook, however, much deal activity in the oil & gas sector is still driven by restructuring, and the industry remains cautious when betting too heavily on growth. Master limited partnership transactions, which involve structures designed to give investors in the sector a blend of yield and capital gain, have dried up. Other yield-related assets are still bundled up in restructured entities controlled by hedge funds, and distressed debt investors are finding it challenging to find buyers who can make the numbers work against a low-growth backdrop.

While declaring a rebound in oil & gas M&A would be premature, the stabilization of oil prices is bringing confidence back to a market finding its feet following a prolonged downturn.


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Navigating change: US M&A H1 2018


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