Deal value in 2019 increased 40% year-over-year to reach $370 billion in the global oil and gas market, driven by upstream and downstream megadeals. Though the value of deals rose, the overall deal count fell by 40% as companies continue to struggle with low commodity prices and shifting market conditions, according to Deloitte’s 2020 Oil and Gas M&A Outlook.
In 2019, upstream deal value rose to $156 billion, up $26 billion from 2018. Deal count fell to 208 transactions, 40% below the five-year trend. Midstream deal value and count rose to $78 billion and 76 deals, a 30% and 50% increase over 2018 respectively.
Downstream deal value reached a decade-high of $114 billion, while transaction volume fell by 15% year-over-year. Oilfield services (OFS) deal value fell $2.5 billion to $19 billion, while volume decreased 20% from 2018.
“Facing continued headwinds, many private equity firms are being forced to hold their investments for a longer period as an IPO or sale to a corporate buyer is often not a feasible exit strategy, except for the most valuable positions. These challenges are pushing most portfolio companies to focus on operations to generate returns, until an exit can be made,” Melinda Yee, a partner at Deloitte, said.
In terms of the outlook for 2020, the Deloitte report expects a dampened level of deal making is expected to continue in 2020, absent an increase in commodity prices.
With investor sentiments changing and oil companies increasing their discussion of environmental, social, and governance issues, some are considering carbon footprint divestitures. The report expects that this year will see not only increased carbon-based divestitures, but also increased renewables investment.
Last year, majors divested a wide swath of assets, and though the pace may slow in 2020, the year may see further portfolio streamlining and large asset divestitures in US shale, the North Sea, and Asia Pacific.
2020 could also see more consolidation of upstream and oilfield services companies, as capital markets remain frozen and topline US production growth continues to decline.
The report also relates that a change in private equity strategy might drive shale sector consolidation. The oil and gas IPO market’s lifelessness has private equity firms rethinking their traditional build-and-flip strategy, which may pivot in 2020 to a build-to-operate model in the Permian Basin and beyond.