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US oil and gas leads global mid-market: new BDO analysis

Published by , Senior Editor
World Pipelines,

A new report from BDO claims that digital transformation initiatives could create a new M&A wave and revamp drilling risk.

Quality over quantity is the message the mid-market US energy sector sent through its 2018 deal activity. Though the number of deals was less than in 2017, they packed a stronger punch: mid-market energy companies recorded 191 deals totaling US$28 237.11 million and averaging US$147 837 per deal in 2018, compared to 207 deals totalling US$20 555.9 million, or US$99 303 on average, in 2017, according to analysis from BDO’s Global Natural Resources team.

The volume of mid-market deal activity, meanwhile, was largely concentrated in the first half of the year, but the fourth quarter saw the most value, with M&A totaling US$6 908.15 million.

Looking to the upcoming year and beyond, the industry’s new pricing paradigm – the result of a fundamental shift in supply and demand dynamics – plus the rapid growth of renewables and accelerating technology advancements will continue to reshape the industry. These factors will make digital transformation a priority—and even a potential driver of future M&A.

The report’s findings include: 

  • US oil and gas are choking – demand for new energy infrastructure will attract investors and dealmakers in 2019: the hurdle to US oil and gas growth is insufficient energy infrastructure. In 2018, Permian gas pipelines were at 98% capacity. By late 2019 crude oil in the southern US shale belt will exceed takeaway capacity by 290 000 bpd. Result: drilled but uncompleted wells are rising and an M&A uptick kicked off by the US$23.3 billion Marathon-Andeavor merger.
  • “Live within your means” say investors: energy resolved to cut costs through digital technology. 52% of executives plan to finance their digital transformation through a sale or divestiture. Nevertheles, our survey reveals scepticism towards profitability: 20% of energy execs believed innovation won’t impact profitability.
  • The Permian awakens – the Permian oil break-even went as low as US$21/bbl. This sparked megadeal M&As, to accelerate in 2019. BDO expect the value of deals to rise substantially as companies look to increase their presence in the basin and remain competitive with the new Permian behemoths.

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