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M&A activity heats up the energy and power sector

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

Matthew Toole  Director, Deals Intelligence, Thomson Reuters

With the market’s volatility, ongoing low Brent and crude prices and a vacillating geo-political environment, what lies ahead for M&A in the Energy & Power sector?

Several news articles have surfaced recently detailing speculation that a mega-deal between Exxon Mobil and BP may be in the works. As deal makers debate whether a $100B cash deal is possible and market pundits weigh on whether this record-breaking deal makes strategic sense, it all begs the question about mergers and acquisitions in the energy sector in general.

Current state of M&A

2017 is off to a strong start for the Energy & Power sector in terms of deals activity. The industry has the largest investment in mergers and acquisitions, with volume totaling $140.1B in the first three months of the year. This is 48 percent more than the next closest industry, Materials, yet with 119 fewer actual deals: 826 versus 707, respectively; and 55 percent fewer M&A deals than the most prolific 2017 sector overall: High Technology (1,584 deals), according to the Thomson Reuters Deals Intelligence report.

The 2017 Energy & Power numbers represent a 60 percent increase over the same time frame last year, with many of the top M&A deals in the sector driven by a re-organization of corporate structures and joint ventures. Deals such as Tulsa Oklahoma-based Oneok’s acquisition of a remaining 60 percent interest in Oneok Partners LP for $17B and Canada’s Cenovus Energy’s purchase of the 50 percent interest, which it did not already own, in FCCL Partnership, a producer of crude petroleum and natural gas, from its joint venture partner ConocoPhillips Co for $13.2B. Williams Partners, also of Tulsa, Oklahoma, acquired 100 percent of WPZ GP LLC, the owner and operator of its natural gas pipelines, for $11B.

Figure 1. Worldwide M&A by Target Macro Sector, first quarter 2017

Worldwide M&A by Target Macro Sector, First Quarter 2017
Source: Thomson Reuters Market Deals Intelligence

These are on the heels of the purchase of BG by Royal Dutch Shell for $70.1 billion, which closed in 2016, and last year’s announcement that Sunoco Logistics Partners LP intends to acquire Energy Transfer Partners LP for $51.4 billion.

Figure 2. Top Worldwide Energy & Power M&A deals since 1980

Top Worldwide Energy & Power M&A Deals since 1980
Source: Thomson Reuters Market Deals Intelligence

Momentum continues

Despite the uncertain geo-political environment, continued sagging prices and questions about OPEC’s production output, Thomson Reuters data shows that global deal making activity in the energy sector totaled $608.0B, an increase of 15 percent during full year 2016, and up 5 percent by number of deals. Full year 2016 ranked as the largest annual period for Energy & Power M&A since our records began in 1980. Energy & Power M&A was just one of three sectors to see year-over-year growth during full year 2016, driven by the largest all-time quarter for tie-ups in the sector during the fourth quarter ($253.5B). Most other industries saw double-digit declines as the value of overall worldwide announced M&A deals fell 16 percent during full year 2016.

Figure 3. Worldwide Energy & Power M&A, by quarter, since 2007

Source: Thomson Reuters Market Deals Intelligence

Along with the tie-up between Sunoco Logistics Partners and Energy Transfer Partners, Canada’s Enbridge Inc. announced a $43.1B plan to acquire Spectra Energy Corp, and Baker Hughes received a $31.7B bid from GE Oil & Gas after a proposed $38.5B offer from Halliburton collapsed in May of last year.

Mega deals abound

Energy & Power also had 60 percent more mega deals (valued at $5B or more) in 2016 than 2015, with 27 versus 17 such initiatives, respectively. One-quarter of the worldwide mega deals were from Energy & Power, and it was the only sector to experience increases in both the value and number of deals year-over-year, despite the overall economic environment.

The United States was the most acquisition-focused country with US $328.3B worth of deals, accounting for 42 percent of the total M&A activity. Cross-border M&A deals also fared quite well, accounting for 46 percent of the sector’s annual activity valued at $280.3B.

What lies ahead

While there isn’t a crystal ball to know for certain the outcome of a Exxon Mobil/BP potential merger, or any of the other pending energy-related deals, keeping an eye on industry M&A trends is essential when analyzing the sector. With the market’s volatility, ongoing low Brent and crude prices and a vacillating geo-political environment, the timing could be right for the continued clip of activity seen thus far in 2017.

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