Global oil and gas M&A activity in Q1/2018 suggests that confidence is once again returning to the upstream sector, according to a new report from Evaluate Energy.
The total value of upstream deals worldwide reached $37.0 billion, which may indicate different things to different people.
On one hand, it is $1.6 billion below the average value seen in every quarter since the start of 2015, and down 44 percent compared to Q1/2017. On the other hand, it is 37 percent higher than Q4/2017.
A clearer message, however, is delivered when looking at underlying activity levels. The number of deals with a value greater than $50 million, or “significant deals,” was at its highest in Q1/2018 than in any quarter since the price downturn began.
Of course, it’s hard to read too much into this in terms of outlook for the rest of 2018. These factors were all true at this time last year. Q1/2017 saw only four fewer significant deals, with $66.7 billion agreed and the WTI oil price averaging over US$50. The following quarters, however, did not live up to this billing. As the oil price dipped during Q2 and Q3, M&A activity abruptly fell, both in terms of the number of significant deals agreed and overall deal values.
This quarter, though, the increased level of dealmaking was underpinned by an even stronger, stable oil price. Having risen through Q4/2017, WTI averaged $62.81 in Q1/2018 – the first time since the price downturn began in 2014 that the average quarterly price has exceeded US$60. Also, “volatility” – the difference between the highest and lowest daily closing WTI prices – was less than any quarter since 2004.
This higher, stable price played a huge role in activity increasing in Q1/2018. Would-be upstream dealmakers will hope that the rest of the year is not a repeat of 2017 and that appetite for M&A is sustained.