Upstream M&A Dealmaking Off to a Slow Start in 2020

By Mahati K L
February 18, 2020
2 minutes read

The first month and a half of 2020 has witnessed a sharp drop in the number of announced upstream oil & gas M&A deals globally relative to the past few years, as operators look to focus their attention on generating better returns from existing portfolios rather than undertake new projects or chase inorganic growth through acquisitions.

The collapse in oil prices since the beginning of the year prompted by the spread of the deadly Coronavirus has left potential sellers reluctant to divest assets in the current depressed oil price environment, with several international E&P companies having put previously announced asset sales on the back burner for the time being. Investor and lender appetite for financing deals has also waned due to uncertainty over the timing of any potential recovery in prices, as oil demand growth forecasts for the next year remain weak.

According to Finbrook data, only a handful of significant transactions (above US$100 million) have been announced since the beginning of the year. In early January, Premier Oil announced that it had entered into an agreement with BP to acquire its interests in the Andrew area and Shearwater assets in the UK’s Central North Sea for US$625 million. Premier Oil also entered into an agreement with KNOC subsidiary Dana Petroleum to acquire an additional 25% interest in licence P1330 (containing the Tolmount gas field) located in the UK’s Southern North Sea for US$191 million plus certain contingent payments. At the end of January, Equinor and Shell entered into an agreement with Schlumberger to jointly acquire its 49% non-operated interest in the Bandurria Sur block in the Neuquén basin in Argentina for US$355 million.

North American upstream deal activity during the same period has also virtually dried up, with the only significant transactions announced thus far in 2020 being BCE-Mach III’s agreement with Alta Mesa Resources to acquire its STACK play assets in Oklahoma for US$225 million, and Camber Energy’s proposed merger with Viking Energy Group.

Dealmaking sentiment has also been negatively affected by the sharp drop in share price suffered by several North American companies that executed major acquisitions over the past 15 months. These include Occidental (down -39% since it announced its acquisition of Anadarko in late April 2019), Callon Petroleum (down -57% since its merger with Carrizo Oil & Gas was announced in mid-July 2019), and Encana (now named Ovintiv, down -69% since its all-stock acquisition of Newfield Exploration was announced in early November 2018).

In addition, oil bankruptcies also reached a 3-year peak in 2019, with this trend expected to continue through 2020. A protracted low-price environment is likely to eventually present attractive buying opportunities for private equity buyers and well-funded E&P companies over the coming months, as cash-starved operators are driven to fire sales of assets or forced to consolidate with their better-funded peers.

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