American Oil and Gas Reporter - November 2015 - 135

2015, to be replaced by natural gas. An
additional 24 gw of coal plant retirements
have been announced for 2016-20."
EVA also is projecting a 200 MMcf/d
increase in industrial sector demand this
winter, to a total 22.8 Bcf/d, NGSA continues. The association says, "The smaller
than usual increase can be attributed to
slower winter-over-winter growth of only
0.7 percent across the entire manufacturing
sector because of a lack of global economic
growth and the relatively strong dollar
somewhat dampening overseas consumption of U.S. products.
"Despite the slowing manufacturing

sector, the natural gas-intensive petrochemical, fertilizer and steel industries
continue to drive natural gas demand
with 66 capacity expansion and new
builds planned for 2015-20, consuming
an estimated 3.9 Bcf/d more natural gas
annually by 2020," NGSA adds.
Those projects represent an investment
of $117 billion and an expected increase
of 3.9 Bcf/d in natural gas demand by
2020, NGSA mentions.
The association says IHS Economics
predicts manufacturing will grow 0.7 percent this winter, compared with 3.3 percent
in winter 2014-15. NGSA adds that IHS

also projects U.S. GDP will increase 2.5
percent this winter compared with 2.7
percent last winter.
Finally, NGSA points to an EVA projection of 3,432 heating degree days this
winter compared with 3,685 HDDs last
winter, which it says will dampen natural
gas demand from the residential and commercial sectors by 2.5 Bcf/d, or 6 percent.
NGSA mentions that the National Oceanic
and Atmospheric Administration is predicting winter in the continental United
States will be 7 percent warmer than
2014-15 and 3 percent warmer than the
30-year average.
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Midstream Dominates Oil & Gas M&A
HOUSTON-Megadeals in the midstream segment dominated U.S. oil and
gas deal value despite a slowdown in
capital markets in third quarter 2015, according to PwC US. In total, the firm
says, 14 midstream deals accounted for
$63.5 billion, or 70 percent, of overall
third quarter deal value.
During the three months ending Sept.
30, PwC says, there were 51 oil and gas
deals with values greater than $50 million,
accounting for $91.2 billion, compared
with 47 deals worth $38.8 billion in the
previous quarter, and 83 deals worth
$125.7 billion in third quarter 2014. There
were seven megadeals (valued at more
than $1 billion) worth $80.8 billion in
the quarter, with four in the midstream
segment, PwC adds.
"Deal activity in the oil and gas sector
was dominated by megadeals in the midstream segment, despite a significant contraction in the capital markets. These
megadeals are driven by the objectives
of gaining the benefit of scale, synergies
and expected growth in distributions/dividends at a time when U.S. onshore production has started to decline," says Doug
Meier, PwC's U.S. oil and gas sector
deals leader. "Depressed commodity
prices, leverage constraints, and deteriorating availability of debt and equity financing will encourage more companies
to merge or sell assets to strengthen their
balance sheets."
There were no oil and gas initial public
offerings in the third quarter, while follow-on equity offerings decreased by 56
percent compared with third quarter 2014,
PwC continues. It says high-yield and
investment-grade debt issuances decreased
by 78 percent and 74 percent, respectively,
compared with third quarter 2014.
"The oil and gas capital markets have
slowed considerably, making it more
challenging for companies to ride out

the (low-price) environment," assesses
Joe Dunleavy, capital markets advisory
partner at PwC. "This reduction in access
to capital will add considerable downward
financial pressure on oil and gas companies
to ensure they have strategies to be in a
position to succeed now, and once the
market rebounds. As we have seen, and
as we expect we will see more of, these
strategies include bankruptcy."

Segment Breakdown
Looking at other oil and gas segments,
PwC reports:
* The upstream segment recovered
from earlier lows, accounting for 27 third
quarter transactions representing $8.8 billion, or an increase of 50 percent in total
deal volume sequentially, but still 36
percent lower than the same period last
year. Six of the transactions represented
equity commitments.
* Oil field services deal value increased to $16.0 billion from $11.1 billion,
compared with third quarter 2014, driven
by one megadeal.
* The total number and value of downstream deals decreased to three deals worth
$2.9 billion, compared with 12 deals worth
$9.4 billion in third quarter 2014.
There were 25 corporate deals in the
third quarter worth $83.3 billion, versus 26
asset deals worth $7.9 billion, PwC says. It
says corporate deals represented 49 percent
of total deal volume and 91 percent of the
total deal value, which included 10 midstream deals worth $61.3 billion.
PwC says investors continued to show
interest in the oil and gas industry with
17 transactions-the highest number of
third quarter deals in the past 10 years-
worth $4.0 billion. Equity commitments
from private investors accounted for 10
of these 17 financial deals worth $2.7
billion, the firm notes.
"Investors continue to work with port-

folio companies to shore up balance sheets
and seek additional investment opportunities where valuations are attractive,"
comments Rob McCeney, PwC U.S. energy and infrastructure deals partner.

Shale Play Deals
According to PwC, there were 22 deals
with values greater than $50 million related
to shale plays in the third quarter, totaling
$29.5 billion. It says this represents a 5
percent increase in total deal value and a
41 percent decrease in total deal volume
when compared with third quarter 2014.
"Companies are focusing on basins
that have proven levels of production,
and are making investments looking to
shed assets associated with nonproductive
wells," suggests John Brady, leader of
PwC's Houston assurance practice.
The most active shale play for M&A
with values greater than $50 million
during third quarter 2015 was the Permian,
which PwC says led with seven deals
worth $4.1 billion. The Eagle Ford contributed five deals worth $2.8 billion.
Although the Utica and Marcellus Shale
each contributed only one deal, PwC
says they led in overall deal value with
one deal worth $20.0 billion.
According to Seenu Akunuri, PwC U.S.
oil and gas valuation practice leader, "Oil
and gas company valuations continue to be
depressed as the realization has set in that
we may be at a commodity price range of
$40-$60 longer than previously expected.
There has been a significant increase in the
number of impairments of assets and good
will. Highly leveraged companies likely
will be looking to sell assets to survive,
and in certain situations, filing for bankruptcy
protection. We expect deal activity to pick
up over the next 12 months as the market
sees companies with free cash flow and
strong balance sheets acquire assets and
businesses from motivated sellers."
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NOVEMBER 2015 135

American Oil and Gas Reporter - November 2015

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