Globally, the oil and gas sector is seeing an uptick in M&A activity. This could point to a significant rebound for the deal market, despite looming uncertainty owing to recent volatility in commodity prices. According to a recent Deloitte Oil & Gas Mergers and Acquisitions Report, the value of global oil and gas deals increased by 38% in H1 2014 over the same period in 2013, achieving a global deal value of $141 billion, with over 60% of this being contributed by Canada and the United States.
North America rebounds?
North American shale continues to lead the deal market. Upcoming political reforms in Mexico that will allow foreign direct investment in the country’s energy sector for the first time in over 80 years may also have a positive effect on the revitalization of energy deal activity in North America. PwC reported this week that U.S. oil & gas deal value hit a record-breaking 10-year high in Q3 2014, buoyed by “mega deals” (those with a value of more than $1 billion) and foreign buyers who are lining up targets. Nevertheless, the rapidly declining price of oil renders the outlook for the North American deal market one of cautious optimism.
Middle East maintains
Owing largely to geopolitical unrest in the Middle East, production in Libya, Iraq, and Iran has been significantly curtailed. This is likely to have contributed to higher commodity prices in H1 2014, making producers less attractive targets. However, a rapid and continual drop in oil prices since July 2014 due to weakening global demand is making some of the smaller production market players more vulnerable to advances by bigger players who have more cash on hand. It follows that deals in the Middle East may be well positioned to weather the ongoing geopolitical storm.
Upward global trend
Despite recent volatility in commodity prices, there are indications of positive growth trends in both energy and oil and gas deal activity. Although Canada and the United States have recently been at the helm of M&A activity in the oil and gas sector, the latest figures support an optimistically upward trend worldwide.
The author would like to thank Marta Jankovic, articling student, for her assistance in preparing this legal update.