American Oil and Gas Reporter - May 2016 - 101

M&A Deal Value Slips In First Quarter
HOUSTON-Merger and acquisition
activity in the U.S. oil and gas industry
held steady in the first quarter, while deal
value was down compared with first quarter
2015, according to PwC US. The firm
says low oil prices closed access to capital
markets and pressured valuations, slowing
the potential for a robust M&A market.
PwC reports there were 39 announced
oil and gas deals with values greater than
$50 million, accounting for $28.0 billion
during the first three months of the year,
compared with 39 deals worth $34.4
billion in first quarter 2015, a 19 percent
decline in total deal value. The firm cites
three "megadeals" worth $18.6 billion,
representing 66 percent of total deal value.
Of those three, PwC says two were in
the midstream sector, one of which represented the largest deal in the quarter.
"As cash flow for oil and gas companies
remains constrained, stress around leveraged assets and overextended balance
sheets remain the top concerns for many
companies," assesses Doug Meier, PwC's
U.S. oil and gas sector deals leader. "We
are in a bifurcated market where companies that have adapted to the lower-forlonger environment by undertaking a
'leaner-for-longer' strategic approach have
lower leverage, more cash, and portfolios
structured for a sustained lower price environment. These companies are better
positioned for a market recovery, and are
developing M&A strategies geared toward
a future recovery. Valuation gaps between
prospective buyers and sellers continue
to hinder deal announcements."
Adds John Bittner, a Dallas-based business recovery services deals partner, "Constrained cash flows, excessive leverage,
and pending maturities and technical defaults have forced many oil and gas companies to engage in discussions with their
creditor constituencies ahead of such maturities and defaults. While the pace of
bankruptcy filings witnessed in December
did not seem to continue during the first
three months of 2016, many companies
continued to prepare for restructurings
by negotiating with creditor groups in
hopes of decreasing leverage and debt
service burden and/or covenant relief."
Investor Activity
PwC says financial investors accounted
for a modest 10 first-quarter transactions,
a 50 percent decrease in total value year
over year and 48 percent sequentially. The
firm says equity commitments from private
investors accounted for nine of those deals
worth $1.9 billion, with five deals in the

upstream accounting for $1.1 billion.
"Continued price volatility and turbulent financing markets put a damper on
the ability of private equity sponsors to
invest capital. However, private equity
enthusiasm remains high in the sector.
Nine of 10 sponsor deals announced were
equity commitments rather than pure acquisitions," relates Rob McCeney, PwC
U.S. energy and infrastructure deals partner. "Lack of financing and the number
of debt obligations coming due by fall
could increase the number of distressed
businesses, and as a result, opportunities
for financial investors."
Joe Dunleavy, capital markets advisory
partner at PwC, comments, "Access to
equity and debt financing remained constrained, as oil and gas companies were
shut out of both the IPO and high-yield
debt markets in the first quarter. Limited
activity in the follow-on equity and investment-grade debt markets saw issuances
decrease in volume by 43 percent and 54
percent, respectively, and 33 percent and
42 percent in value, respectively, compared
with first quarter 2015."
PwC says it counts 24 corporate deals
worth $25.0 billion versus 15 asset deals
worth $3.1 billion in the first quarter.
Corporate transactions represented 62
percent of the total deal volume and 89
percent of the deal value.
"Commodity prices continue to disrupt
the marketplace, with companies taking
impairments and cutting costs to the bone,"
says Seenu Akunuri, PwC U.S. oil and gas
valuation practice leader. "In addition to
tightening budgets and capital investments,
there is reluctance to close an M&A transaction unless it will have an immediately
accretive impact to the bottom line while
retaining leverage at manageable levels."
Oil And Gas Segments
Looking at first quarter M&A activity
by industry segment, PwC reports:
* Upstream deal activity consisted
of 19 transactions totaling $9.1 billion,

an increase of 58 and 151 percent in total
deal volume and value, respectively.
* The total number and value of oil
field services deals increased 133 percent-to seven-and 346 percent-to $1.7
billion-respectively.
* Downstream deals remained the
same as first quarter 2015 at two, while
total deal value decreased by 78 percent.
* Eleven midstream deals decreased
50 percent in terms of volume-contributing
$17.0 billion-and 42 percent in value.
PwC says there were 15 deals with
values greater than $50 million related to
shale plays, totaling $5.6 billion. This
represents a 5 percent increase in total
deal value, but a 67 percent increase in
total deal volume, compared with first
quarter 2015.
The firm says 13 of those transactions
related to shale plays occurred in the upstream
and accounted for $3.5 billion, or 68 percent
of total upstream deal volume and 39 percent
of the total upstream deal value. There were
only two midstream shale-related deals, accounting for $2.0 billion, a 56 percent decrease in deal value, PwC adds.
The most active shale plays for M&A
with values greater than $50 million were
the Permian and the Eagle Ford, which
led in volume with three deals each worth
$341 million and $1.0 billion, respectively,
PwC continues. It says the Niobrara, Haynesville and Marcellus each generated two
deals, but the Niobrara Shale led in overall
deal value with two deals totaling $2.1
billion. The Fayetteville, Utica and Bakken
saw no activity during first quarter 2016.
PwC notes that consistent with historical
trends, domestic deals dominated M&A
activity, generating 97 percent of the deal
value ($27.1 billion) and 87 percent of
volume (34 domestic deals). Foreign
buyers announced one deal accounting
for $190 million, which PwC says was a
75 percent decrease in volume and an 86
percent decrease in value, year over year.
There were four undisclosed global deals
totaling $760 million, it says.
❒

EIA Projects U.S. Oil Production
Will Fall 800,000 Bbl/d This Year
WASHINGTON-The U.S. Energy Information Administration estimates U.S.
crude oil production will decline by
800,000 barrels a day this year, from an
average of 9.4 million barrels a day in
2015 to 8.6 MMbbl/d in 2016 and then
to 8.0 MMbbl/d in 2017.

EIA says the forecast presented in its
April Short-Term Energy Outlook reflects
a decline in lower-48 onshore production
that is partially offset by growing production in the federal Gulf of Mexico.
"Total U.S. crude oil production has
fallen by 700,000 bbl/d since April 2015
MAY 2016 101

American Oil and Gas Reporter - May 2016

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