2020 global oil and gas M&A activity plunged: Deloitte

In 2020, the midstream sector proved more resilient as deal count halved year on year, but value was up more than 30%. Notably, six of the nine largest midstream deals involved institutional and non-oil and gas buyers and focused primarily on gas and LNG.

While the energy transition could hinder some midstream dealmaking in 2021, some midstream assets may have substantial value for greener, alternative uses, like transporting biofuels, carbon dioxide, and hydrogen.

Looking forward to 2021 across all subsectors of oil and gas, Deloitte notes four trends that will shape the industry near term, including an industry reset on financials that could spur dealmaking, a critical search for new capital, continued consolidation beyond the Permian, and the acceleration of the energy transition into mid and downstream.

Report highlights are listed below.

A look ahead at 2021

Four themes and trends for 2021: 2020 has set the stage for a nascent recovery.

• Industry reset: As companies finalize impairments, bankruptcies reduce liabilities, and debt is restructured or discharged, the drag on M&A should lessen, and dealmaking could return to pre-2020 levels in 2021, with financially more secure companies catalysing the deal making.
• New capital needed: Over the past five years, initial public offerings (IPOs), follow-on equity issuances, venture capital, private equity, and private investment in public equity (PIPE) have dropped almost to zero.
• Consolidation continues: Upstream consolidation will likely spread outside of the Permian, like the Eagle Ford and Haynesville, if oil prices remain north of US$50.
• The energy transition is accelerating: Lower-carbon M&A activities has focused on upstream, but we expect it to spill over into midstream and downstream.

A look back at 2020

Oil and gas dealmaking flatlined in the first half of 2020, but recovered in the second half.

• Overall activity fell to 258 transactions as 2020 had the lowest number of deals and value in more than a decade.
• Of the 10 largest deals globally, five were in upstream, four were in midstream, and one was in downstream. Seven of the 10 were in the US.

Upstream

Upstream deal value and count were down 50% and 40% year on year.

• There were 138 deals worth US$70 billion in 2020, compared with 238 deals worth US$134 billion in 2019.
• Following an unprecedented low first half of the year, upstream deal value returned to pre–COVID-19 levels even as deal count remained anemic.
• The US dominated upstream activity, representing 53% of deal count and 73% of deal value.
• There was a shift in M&A, with a focus on lower-premium, all-stock, corporate consolidations with an eye to the Permian, which remains the single largest region for drilling and M&A.

Looking forward: Going forward, valuation uncertainty will likely impede many potential transactions; however, all-stock and low-premium deals have helped reduce buyer’s risks and gotten some deals across the line.

Oilfield services

OFS was hit the hardest, with deal value and count down 90% and 50% year on year.

• There were only 28 deals worth US$1.8 billion in 2020, compared with 61 deals worth US$19 billion in 2019.
• 2020 was the first year since 2013 that no OFS transaction exceeded US$1 billion, reflecting poor market fundamentals.

Looking forward: OFS M&A dealmaking is not expected to accelerate in 2021 because of continued headwinds from lower demand and overcapacity in key markets.

Midstream

Midstream proved more resilient as deal count halved year on year, but value was up more than 30%.

• There were 42 midstream deals worth US$106 billion in 2020, compared with 81 deals worth US$79 billion in 2019.
• Six of the nine largest deals involved institutional and non-oil and gas buyers and focused primarily on gas and LNG.
• Pullback in drilling activity and lower commodity prices reduced interest in gathering and process assets, with the number of those deals declining from 23 to eight year on year.

Looking forward: One challenge to further investment will likely be the energy transition, but midstream assets may have substantial value for alternative uses, including transporting biofuels, carbon dioxide, and hydrogen in a lower-carbon economy.

Downstream

Overall, there were 50 downstream deals worth US$40 billion in 2020, compared with 53 deals worth US$115 billion in 2019.

• Downstream value declined year on year, partially offset by a single large transaction: Marathon Petroleum’s US$21 billion sale of its Speedway retail business to 7-Eleven.
• While deal count was flat, value dropped by more than 60% year on year.
• The lack of large refining deals reflects a natural slowdown after several years of large-scale consolidation.

Looking forward: Stress in the refining business could lead many downstream operators to invest more toward distribution and retail in a push to capture higher margins and increase market share.

For more news and technical articles from the oil and gas pipeline industry, read the latest issue of World Pipelines magazine.

World Pipelines’ February 2021 issue

The February 2021 issue of World Pipelines includes: a report on Australasian pipelines; an interesting look at the need to protect pipeline information from the Freedom of Information Act (USA); analysis of Ukraine’s place in the global gas sector; and technical articles on subsea repair, coatings, ILI and SCADA systems.

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