KPMG analysis shows that mergers and acquisitions (M&A) activity in upstream oil and gas and oilfield services (OFS) was relatively subdued over 2018.
The jury is out as to whether we will see a meaningful pick-up in 2019.
Global exploration and production deal values fell by 9% last year to $127 billion (£98.2n), the lowest level in 10 years.
This reflected a reduction in mega-deals, with BP/BHP Billiton’s onshore US transaction the only reported transaction over $10bn (£7.7bn) in value.
Seven of the 10 largest deals took place in the US market.
North American unconventionals represented the majority of the market, with M&A spend amounting to $75bn (£58bn).
However, this is still an $11bn (£8.5bn) reduction in spend, compared to the record highs of 2017.
Within international markets, cross-border spending by state-owned firms, which had featured prominently in activity earlier in the decade, was at a record low at only 3% of total investment.
M&A activity was also modest in European markets, with relatively few large transactions taking place in the sector.
Within European markets, analysis revealed deal value decline was steeper, reducing by around $8bn (£6.2n) to $14bn (£10.8bn), or 11% of the global market.
Higher activity in 2017 was driven by a series of large transactions taking place, including Maersk/Total, Chrysaor/Shell, Ineos and Siccar Point.
The BASF SE/LetterOne transaction to form the new Wintershall Dea was the largest deal of the year for Europe, but overall the UK continental shelf was relatively quiet.
This was possibly due to the timing of the transferable tax history coming into effect, causing understandable delay early on in the year, and renewed uncertainty over oil prices in the final months of 2018.
A number of large North Sea asset deals are reputedly in play in 2019, but it remains to be seen whether transactions will be consummated before the year-end.
In the OFS sector, there was a headline 50% drop in the value of global deals last year, to $18bn (£13.9bn), from $35bn (£27bn) in 2017.
In volume terms the reduction was a more modest 14%, with 145 deals reported during 2018, which is in line with the long-term annual average in the sector.
The headline value reduction reflects fewer larger transformational deals, with only four deals worth more than $1bn (£773 million) – Ensco/Rowan, Transocean/Ocean Rig, Prysmain/GGC and
Archrock – whereas in the previous two years there were several larger deals, such as Transocean/Songa, McDermott/ CBI, Technip/FMC, GE/Baker, and Schlumberger/Cameron.
In the mid-market space – deals of under $500m (£387m) – analysis shows the number of deals reduced by 10%, again with a higher 43% reduction in total values.
Minor bolt-on transactions and smaller sub-sector consolidations were more prevalent in 2018, with fewer significant primary deals or private equity backed management buyouts.
Locally in Europe, we followed the global trend with a small reduction in volumes and a larger drop in values, reflecting the absence of any particularly large transactions such as Wood/Amec
Foster Wheeler in the previous year. The EnerMech/Carlyle transaction was the largest reported local deal of 2018.
Deal volumes were consistent during each quarter of 2018, with the Q4 drop in oil price not appearing to significantly impact M&A activity.
However, there may be a timing lag which could have an impact on reported activity in the first part of 2019.
Having considered the market analysis and the general activity trends of the past decade, my general feeling on the current market is that it is steady and in line with recent activity levels.
But at this stage, I would not predict any major uptick on 2017 or 2018.
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