A new report from BDO claims the US’s new message of quality over quantity is fueling the mid-market US energy sector. While deal activity in 2018 was lower than in 2017, the deals were actually more lucrative:
- Mid-market energy companies recorded 191 deals totaling US$28 237.11 million and averaging US$147 837 per deal in 2018.
- Compare that to 207 deals totaling US$20 555.9 million, or US$99 303 on average, in 2017, according to an analysis from BDO’s Global Natural Resources team.
Looking to the upcoming year and beyond, the industry will face a new pricing paradigm, which will include a fundamental shift in supply and demand dynamics, plus the rapid growth of renewables and accelerating technology advancements. According to the report, these factors will make digital transformation a priority and even a potential driver of future mergers and acquisitions (M&A).
- US oil and gas will have to compete for the market place. Demand for new energy infrastructure will attract investors and dealmakers in 2019; the hurdle to US oil and gas growth is insufficient energy infrastructure. In 2018, Permian gas pipelines were at 98% capacity. By late 2019, crude oil in the southern US shale belt will exceed takeaway capacity by 290 000 bpd. Result: drilled but incomplete wells are rising, and an M&A uptick was kicked off by the US$23.3 billion Marathon-Andeavor merger.
- Investors want new tech to cut costs: 52% of executives plan to finance their digital transformation through a sale or divestiture. Even with that high percentage, the report reveals skepticism towards profitability: 20% of energy execs believe innovation won’t impact profitability.
- The Permian will increase deals: The Permian oil break-even went as low as US$21/bbl. This sparked megadeal M&As, which will accelerate in 2019. BDO expects the value of deals to rise substantially as companies look to increase their presence in the basin and remain competitive with the new Permian behemoths.
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