M&A in the US oil & gas sector slowed in 2019, with 190 deals worth US$158 billion, down 38 percent in volume and 45 percent in value, mirroring steep declines in global M&A in the industry.

The fall in M&A in the oil & gas sector has been driven by a number of factors, including a reduction of capital flowing to the industry, as some institutional investors pull back from fossil fuel investments, and continuing uncertainty in the price environment after an initial recovery from December 2018's lows.

Indeed, the sharp decline in oil prices in late 2018, when US crude ended the year almost 25 percent down at US$45.1 a barrel, affected deal activity for the first quarter despite a price bounce-back from January to March. Yet, there were still some significant transactions through the year, including Occidental Petroleum’s US$54.4 billion acquisition of Anadarko Petroleum and MPLX’s US$10.3 billion purchase of Andeavor's logistics and pipeline business.

Long-term thinking

One of the drivers for larger deals in the sector has been a transition toward long-term development and the need for large capital expenditure within the sector. Exxon and Chevron, for example, announced plans to increase production growth in the Texas Permian Basin during 2019. The scale of such moves and the capital required has led to further consolidation in the industry, as oil majors seek assets to acquire and develop over the long term.

Inbound activity

The year also saw the return of overseas buyers to the US oil & gas sector, lured in part by low asset prices. Osaka Gas acquired East Texas gas producer Sabine Oil & Gas for US$610 million, while Spain’s Enagas joined Blackstone Infrastructure Partners and GIC, Singapore’s sovereign wealth fund, in an US$836 million deal to acquire oil & gas pipeline operator Tallgrass Energy. In addition, an overseas buyer completed one of the top three deals in the sector—Australia-based IFM Investors’ acquisition of Buckeye Partners for US$10.2 billion.

US$158
billion
The value of 190 deals targeting the US oil & gas sector in 2019

Despite the fall in deals in 2019, there are expectations in 2020 that the logjam could start clearing, as the higher valuations that sellers set have failed to materialize. The drive to optimize portfolios, which continues to grow as activist investors remain vocal in the sector, and refinancing on a significant amount of company debt is likely to put pressure on restructured businesses to sell assets. As a result, we expect there to be a strengthening of M&A activity in the sector through 2020.

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