The value of transactions in the oil and gas sector increased in 2018 despite a lower volume of transactions

The value of transactions in the oil and gas sector increased in 2018 despite a lower volume of transactions

Transaction value increased by 23% in 2018, and transaction volume declined by 18%

The total value of oil and gas transactions increased by $ 79.7 billion in 2018, to $ 426.8 billion, despite a 18% drop in transaction volume.

This is one of the conclusions of the EY Global oil and gas transaction review 2018, which shows that, while in the first two quarters of 2018 there was a greater appetite for transactions facilitated by rising oil prices, prudence returned to the second semester of the year due to lower oil prices at 2015 levels.

"Romania expects to clarify the legislative and regulatory framework for new hydrocarbon extraction activities, while gas producers are considering the opportunity to relaunch petrochemistry in the country, waiting for clarifications and improvements regarding the functioning of the internal gas natural gas markets. Once the predictability and clarity demanded by investors is achieved, the transactions will not be delayed, "said Valeriu Binig, Senior Advisor of EY Romania.

With regard to future developments, the merger and acquisition environment (M & A) is likely to be characterized in 2019 by lower commodity prices, by an uncertain political climate, and by energy-specific transition strategies.

"The transaction environment over the past three years reflected the adaptation to a new perceived normality, because the energy transition still has a strong influence on the portfolio strategies of the companies. Risk sensitivity and continued focus on portfolio optimization have driven capital movements from upstream to midstream and downstream in 2018. With commodity prices down, we expect firms in the industry to continue to be reserved for the way they place their cash. However, we anticipate that other sources of funding will support an increase in M ​​& A activity in 2019, "said Andy Brogan, EY Global Oil & Gas Transaction Advisory Coordinator.

The value of upstream transactions fell from $ 164.8 billion to $ 130.3 billion in 2018, while the number of transactions declined by 26%. Other factors that have had an impact on M & A activity last year include a more disciplined approach to capital investment, with upstream actors focusing on capital investments able to generate the highest productivity and debt reduction.

Despite forecasts of transition from oil to gas, it did not seem to lead to a more intense trading activity in the gas sector. Thus, the share of these transactions diminished from 21% to 13% during the year.

Last year it was marked by a record of the past five years in midstream transactions ($ 193.1 billion), the highest total value of transactions (45%) in the oil and gas industry in that period.
Simplification and restructuring of corporate structures generated around 75% (140 billion dollars) of total transaction value, companies restructuring and consolidating their affiliated entities in response to changes in US tax regulations. Companies continued to focus on reducing capital costs, improving access to capital and improving balance sheets to expand infrastructure. Downstream activity registered record levels in 2018.
Transaction value reached $ 82.5 billion (up 11% from 2017), while volume was 172 transactions (up 11% from 2017). According to evolution in recent years, North America and Europe remained the most active regions, totaling 88% of transactions and 69% of transactions.

In 2018, the oilfield services sector reported 218 global transactions, a decrease of 7% from 234 transactions in 2017. The value of transactions in this sector ($ 21 billion) fell 11 percent from $ 24 billion in 2017, due to the limited number of large transactions, over $ 1 billion (only three such transactions in 2018), and the persistence of the absence of transformation transactions (over $ 10 billion).

Looking in the past, 2013 and 2014 were the most intense years for M & A activity in the oilfield services sector lately, followed by low values ​​in 2015 and 2016 and a slight recovery in 2017-2018. The report indicates that this sector may expect an upward trend in 2019 and 2020.