Deal activity was sparse in the oil & gas sector in 2016, perpetuating a downward trend that began in 2011. The number of announced/completed deals actually reached the lowest point in a decade this past year, due, in large part, to historically low oil prices.
“It was a challenging M&A environment in oil & gas in 2016,” says Mark Andrews, Partner and Head of Oil & Gas with KPMG in the UK. “As the price of oil has fallen, we’ve seen the creation of a ‘valuation gap’ between buyers and sellers, with many of those would-be buyers concentrating their efforts on ensuring the sustainability of their own operations rather than pursuing inorganic growth.” However, Andrews did point out a slight uptick in deals in oilfield services, with a number of players completing mergers aimed at unlocking synergistic benefits.
While overall number of transactions was down for the year, the announced value (in 2015) and the completed value (in 2016) was driven by one deal in particular – the mega-deal that saw Shell acquire BG Group at a price tag of US$53 billion. “This was certainly one of the largest deals we’ve seen in the sector in recent years and makes Shell the world’s second-largest energy company,” says Andrews. “The acquisition also gives Shell a leading position in both deep-water production and liquefied natural gas.”