Despite global oil and gas deal volume hit a five-year low in 2017, EY Global oil and gas transaction review 2017 said that the 2018 outlook for mergers and acquisitions (M&A) remains optimistic, with upstream deal value increasing 30% year-on-year.
Upstream deal value increased to US$172b. North America led upstream activity, with deal value up 19% to US$94b in 2017. Europe also reported its best performance in more than five years at US$27b. Increasing private activity and the adoption of more innovative transaction structures are expected to be key for upstream M&A in 2018, as joint ventures will become increasingly common.
Midstream deal volume increased to 14% in 2017. Total valuations continued a four-year downward trend. Meanwhile, the trend toward large North American transactions continued, accounting for nearly 90% of the top 20 deals. The report anticipates a stronger midstream deal market in 2018.
Downstream deal value decreased 12% to US$59b in 2017, with the total transactions dropping 16%. However, deal values in 2017 were higher than the average recorded over the last five years, with the US leading other regions in both deal volume and value.
Andy Brogan, EY Global Oil & Gas Transactions Leader, said:
“Risk sensitivity and a continued focus on internal performance improvement may have delayed the uptick in deal volume we expected in 2017. But the need to demonstrate appropriate returns is now pushing companies to reposition their portfolios and seek economies of scale, which in turn we anticipate will underpin more M&A activity in 2018.”
Oilfield services (OFS) operators increasingly focused on returns in 2017, yielding 215 deals – up 13% on 2016. An increase in upstream capex spending and the improving oil price environment is expected to see OFS M&A activity continue to strengthen into 2018.
This year is expected to see a continued focus on transactions in the downstream, as companies look to balance portfolios across the value chain and seek growth opportunities.
