Investor enthusiasm was high in the first quarter this year, driven by a pro-energy policy agenda, relatively stable price of oil, and advances in shale technologies, PwC said. A total of 53 deals were announced in Q1, worth $73.04 billion, a 160-percent surge in value year-on-year. In the upstream, 32 deals worth $36.60 billion were struck, which was a 304-percent jump in value compared to the first quarter of 2016. The Permian proved to be one of the hottest basins globally, and it attracted even foreign investment. Permian deals were a record high at $21.36 billion, PwC said.
“Major players, such as IOCs, are changing their strategic portfolio positions, increasing their exposure to onshore acreage. This is reaffirming US shale is becoming the swing producer, at the expense of projects in deepwater and Gulf of Mexico,” said Seenu Akunuri, PwC US Oil and Gas Valuation Practice Leader.
The mega deals announced in the first quarter were 11, worth a total of $62.23 billion, with six in the upstream worth a combined $29.30 billion, and another five deals in the midstream segment.
In its previous report on U.S. oil and gas deals, PwC said that fourth quarter 2016 deal value was $84.8 billion, or 49 percent higher than Q3, and 168 percent higher than the fourth quarter of 2015. Back then, the analysts said that “As we move into 2017, deal-makers are in high gear, with a green flag and a full tank of gas.”
Now, looking forward, PwC warns against rising headwinds at the end of the first quarter 2017 that may slow down M&A activity as we go into the second quarter, including “increasing seller expectations around value”. This quarter’s deal activity will probably depend very much on the ability of buyers and sellers to bridge that emerging gap in valuation, PwC noted.
“As the quarter progressed, we sensed that there was a little bit of a pullback as we exited the quarter,” said Doug Meier, US Oil & Gas Sector Deals Leader.
The SPDR S&P Oil & Gas Explore & Prod. ETF (NYSE:XOP) was trading at $35.06 per share on Friday morning, up $0.07 (+0.20%). Year-to-date, XOP has declined -15.35%, versus a 5.21% rise in the benchmark S&P 500 index during the same period.
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