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Is an upstream M&A market recovery sustainable during the energy transition?
22 March 2021Chris Sheehan
Following the dreadful year of the COVID-19 global pandemic that
led to historical lows in deal activity in 2020, upstream M&A
deal flow has begun to rebound from the bottom as industry
conditions improve.
Is this early-stage, fragile recovery sustainable in the midst
of the energy transition?
The upstream oil and gas sector remains under a shroud of
negative investor sentiment as the momentum for low carbon
continues to gain steam. Despite the recent resurgence in crude oil
prices and share prices of producers, the E&P sector's
weighting of the stock market remains in the low single digits.
E&P players continue to be under pressure to improve their
financial performance and, along with international oil companies
(IOCs), to respond to the growing global emphasis on the need to
rapidly reduce greenhouse gas (GHG) emissions. Many companies are
reacting to the winds of change and accelerating their shift toward
net zero, while others are delicately striking a balance or could
decide to double down on the future of fossil fuels.
In the upstream M&A market, who will be buying and selling
as companies restructure their global portfolios? What regions will
attract M&A investment? Will valuations decline or rise? As
strategy shifts continue to rapidly unfold, we believe that fluid
M&A market dynamics provide myriad of opportunities for
resilient companies to transform their portfolios and reposition,
as the oil and gas industry pivots in an era of complex
uncertainties but thought-provoking possibilities.
8 key take-aways from the Global Upstream M&A
Outlook 2021
The global upstream M&A asset market activity will rebound
substantially from the historic bottom.
Deal pricing will rise for both oil-weighted and gas-weighted
asset transactions.
There will be more diversity in North American deal activity on
a geographic basis, targeting resource basins outside the
Permian
Corporate consolidation in the Permian Basin will shift from
large mergers between the "haves" to mergers between the
"have-less" producers.
National oil companies' (NOCs) and state-owned firms' M&A
spending on cross-border acquisitions will rise from subdued levels
in recent years.
Privately held and private equity (PE)-backed E&Ps and
financial players will play a vital role in the international
acquisition market.
Contingent payments will be a critical component in buyers and
sellers reaching agreements in international asset
transactions.
The scarce inventory of world-class international oil and gas
assets on the market will continue to attract financially strong
buyers and transact swiftly compared with the broader set of
mixed-quality opportunities for sale.
For more in-depth analysis, register for our 2021 Global
Upstream M&A Review and Outlook webinars:
