Fall in oil company merger activity

According to the latest EIA research, 2Q15 exhibited the largest amount of oil companies' merger and acquisition (M&A) activity by value since 4Q12. The announced merger between Royal Dutch Shell and BG Group in early April accounted for US$84 billion of the US$115 billion quarterly total.

However, without the Shell-BG merger, the value of deals in 2Q15 would have totalled US$31 billion, US$18 billion higher than 1Q15, which was the lowest since at least 2008. The 137 deals announced in the second quarter was the lowest number since 4Q08 and 42% below the 235 median quarterly number of deals recorded over the previous two years, indicating less breadth of activity.

Companies often merge with or acquire other companies or their assets in an effort to achieve longer term growth, economies of scale, access to new technologies, diversity of market exposure, or a combination of factors. The buying or selling company may see a valuable opportunity that aligns with its own goals and expectations in deciding to purchase or sell assets. Furthermore, a company may feel that it could benefit from adding new assets that complement its current strengths or by developing expertise in a market segment it currently does not participate in.

M&A deals vary in size and can sometimes take months of negotiating to complete. M&A activity often reflects how market participants view future opportunities. The availability and cost of financing, as well as legal factors, also play a critical role in the value and amount of M&A activity.

Adapted from press release by Rosalie Starling

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