Global oil and gas M&A on a decline amid Covid-19 pandemic

GlobalData Energy 11 September 2020 (Last Updated September 11th, 2020 11:00)

Global oil and gas M&A on a decline amid Covid-19 pandemic

GlobalData’s latest thematic report, ‘M&A in Oil and Gas (2017–Q1 2020)’ suggests that, in the short term, Covid-19 is likely to impact deal activity in the oil and gas sector. This may lead to a drop in the number of announced deals in each quarter and their deal value.

In Q1 2020, a total of 14 M&A deals with a transaction value of $50m or more were announced in the global oil and gas space. These deals had a combined transaction value of $4.2bn, which was down 80% when compared to Q4 2019 and 95% down compared to Q1 2019.

In 2019, M&A activity reached $224.4bn in deal value, reflecting growth of 29% and 159% compared to 2018 and 2017 respectively. Majority of the deals were generated in the upstream sector. The main themes that drove the M&A activity across the oil and gas industry in 2019 were shale, emerging economies, China impact and subsea. Besides, deal activity was also influenced by the need to make strategic partnerships to overcome regulatory challenges, gain access to the Internet of things (IoT), cloud or other emerging technology, and diversify into renewable energy. The growing importance of sustainability, combined with volatile oil prices, and diminishing resources also resulted in M&A for diversification.

The equipment and services sector witnessed most technology-driven deals in the oil and gas industry. Tightening profit margins and resources that are increasingly difficult to reach have, in part, made the investment into technologies a necessity.

The figure below highlights M&A activity in the global oil and gas sector by deal volume and deal value during the time period 2017–Q1 2020.

Figure: M&A activity in the global oil and gas sector, 2017–Q1 2020

In Q1 2020, GlobalData’s oil and gas index fell by 43%. The index remains 28% below January 2020 levels, turning many oil and gas companies into attractive bid targets. Currently, the Covid-19 pandemic has created uncertainty in global energy demand that has compelled oil and gas companies to observe capital discipline and refrain from M&As. However, in the medium term, the market correction could create attractive M&A opportunities in the industry.