Oil and gas sector M&A deal volumes slid in 2014, says EY

Volume of mergers and acquisitions in the oil and gas sector slid further over 2014, even though headline deal valuation rose, according to Ernst & Young.

In a recent industry report, the global advisory firm said transaction activity was particularly slow over the fourth quarter of last year as oil market volatility dented deal-making.

Total global deal valuation came in at $443 billion, up by more than 69% on an annualised basis from 2013, and well above the most-recent peak in 2012. However, the number of transactions – i.e. the total deal volume – continued to decline dropping more than 20% from 2013.

EY said upstream transactions continue to dominate the M&A landscape, accounting for almost three-quarters of the total global deal volume. However, the upstream share of total reported deal valuation dropped below 50% for the first time in 2014, as non-upstream deal activity surged.

Overall, the reported deal valuation was up for the year for each segment of the industry with upstream increasing by 21%, downstream by 88%, midstream by 115%, and oilfield services by 242% even though the number of deals for each segment, except downstream, came in lower than 2013.

Looking ahead to 2015, Andy Brogan, Global Oil & Gas Transaction Advisory Services Leader at EY, said the scope for a strengthening the oil and gas M&A market would be primarily driven by the implications of and responses to the recent price collapse.

“As the year goes on, we expect to see more motivated sellers and more consensus on valuations. Consolidation will be driven by over-capacity, intense margin pressures, and generally weaker capital markets,” he added.