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.
Read the article online at: https://www.worldpipelines.com/business-news/11032019/us-oil-and-gas-leads-global-mid-market-new-bdo-analysis/